Who uses social media for financial advice? Lots of people, actually

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This week GameStop, an American video game retailer, became the most traded security in the world thanks to Reddit users.

Specifically, thanks to the now more than 5 million users who make up r/WallStreetBets. The Redditors are currently in a head-to-head war with hedge funds over who has the right to manipulate the financial market, in a saga which has brought Republican Ted Cruz and progressive Alexandria Ocasio-Cortez on to the same side, backing the Redditors.

In comparison, the Australian equivalent – r/ASX_Bets – only has a community of about 36,000. They have nonetheless managed to double the share price of a local mining company with the same code as GameStop on the Australian exchange – GME.

But turning to social media for investment advice is nothing new. We just haven’t seen anything on this scale before.

As 2020 left young people un- or underemployed, many looked to the financial markets seeking income. According to one survey of 2046 Australians, 40% of millennials and Gen Zs participated in the stock market for the first time last year.

And while Robinhood – the trading app at the centre of the GameStop saga – has not made its way to Australia as of yet, Australians are very much in the game.

Stake, the Australian answer to Robinhood, saw a 129% jump in users in the first half of 2020 compared with the six months prior. World trading platform eToro experienced a 480% growth in Australian users in 2020 and CommSec – Commonwealth Bank’s trading platform – grew fourfold, signing up 250% more customers in 2020 compared with their normal yearly rate.

Reddit is not the only platform fuelling the retail investor drive. There’s Twitter, with a thriving CryptoTwitter community. YouTube has made celebrities out of Graham Stephan (2.8 million subscribers) and Nate O’Brien (950,000 subscribers), who make videos on how to go from $0 to a million. These social media “gurus” offer further advice on Discord channels.

The motive at the beginning was primarily quick moneySam, a Canberran crypto trader

On TikTok, a newer addition to social media investment content, #moneytok and #stocktok have 3.8 billion and 361 million views respectively. Many of these trading influencers – and their followers – are young men. The message is simple: if you follow their predictions, you could become a millionaire easily and quickly – and if you lose out, then the gamble is part of the fun.

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Sam*, who works an office job and drives Ubers in Canberra on the side for extra income, learned about trading from YouTube and Twitter. Sam is not new to the market (he has been trading since 2017) but his story is not much different from what we are seeing now. “The motive at the beginning was primarily quick money and greed.”

His strategy has evolved since then. “I’ve spent the time learning to understand the fundamentals of trading and reading charts, rather than simply going into trades based on what others are saying or hoping, which was like gambling.”

But he still prefers trading cryptocurrency, specifically for its volatility. “Traditional markets are very slow moving, where as in the cryptocurrency sphere fluctuations of 20%-30% in an investment can happen within an hour or a day which would happen in traditional markets in three to five years.”

And while Sam’s single best trade turned USD$75 investment into USD$1,600 over the space of two weeks, over the years he has also lost USD$40,000 of his portfolio. He still depends on his fulltime job and side income from Uber to sustain himself.

“The market is far too volatile for me to feel confident enough to use trading as a substitute to my full time income.”

Though the much of the high risk, high reward financial content online is American, technology has lessened barriers for Australians to invest in US markets.

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Some creators do preface that their content is not financial advice, but this is not standard practice. Even if they do, on TikTok at least, this is on their bio, and users who see the videos on their “for you” pages will never see it. On that platform, inaccurate financial advice is already rife.

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While qualified financial advisers could be held responsible for any misleading claims made on their social media pages, there is nothing stopping influencers, or strangers on Reddit, from giving misleading advice. The lack of adequate financial education in Australian schools also does not help young people differentiate helpful information from the misleading.

And while different investors have different goals, financial backgrounds and varying appetites for risk, men are more likely to participate in lottery-type stocks. The Australian Gambling Research Centre has also found that young men are the group most at risk of gambling-related harm more generally.

But there is another side to online financial advice.

Women, another group affected heavily by job losses, also rapidly grew as an investor base in Australia in 2020. And there are finance content creators for them too.

Head over to Instagram, and you’ll find perfectly pink and beige slideshows offering guides on everything from diversifying your income, to what an exchange traded fund is, and how exactly interest free credit cards work. Here, the name of the game is “financial freedom”: to get out of debt, never depend on a man again, and retire with a healthy million dollars because you started investing right (and early).

In our mind a financial adviser is an old man sitting on a desk and we’re not sure what to even ask.Roslyn Russell, financial wellbeing researcher

Australian big-names include @shesonthemoneyaus (81,000 followers – also a wildly successful podcast) and @the.brokegeneration (44,000 followers); but there’s also @thefianncialdiet (663,000 followers) and @thebudgetmom (604,000 followers) who offer a more American perspective.

Unlike crypto-influencers and day traders, their advice is risk averse, but their communities are just as strong. These accounts have inspired thousands of women to share their financial journeys; the She’s On The Money’s Facebook group boasts 130,000 members who actively share money wins, losses and ask questions about everything from the best gas providers to building up super funds.

Prof Roslyn Russell explores the financial wellbeing of women in Australia at RMIT. She understands why young people flock to influencers.

“There’s actually not enough financial advice available that’s affordable and fun and just for the average young person, let alone an average woman,” she says. “It is just not available. You can either get a financial counsellor or you can spend hundreds of dollars to get a financial adviser. There’s nothing in between.”

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“It might be about the confidence, as well … I mean, in our mind, a financial adviser is an old man sitting on a desk and we’re not sure what to even ask. These younger women on Instagram might make you feel comfortable because they look like you. It’s really comforting.”

But this can raise an issue for some women too. What if none of these young people look like you? Mariam Mohammed and Mellissa Ma from Money Girl, a social enterprise that delivers a financial literacy program for young women in Australia, say this concerns them. “Common conversations are around things like curbing a shopping addiction, getting into the property market, what to do with inheritance money. These stories are sometimes not as prevalent in other communities.”

They note that even good financial advice offered online in Australia tends to skew middle class, heterosexual and white.

“One money problem more common for young brown women for example, is ‘I need to move out of home because the male preference culture at home is driving me mad, or my parents are emotionally abusive and they’re manipulating me’ … So more vulnerable communities are continuing to fall through the cracks despite all the information going around. People like migrant and refugee women, women who have experienced violence, LGBTQ people, those with disability.”

And while Mohammed and Ma don’t expect personal finance influencers to tackle an education problem that is exacerbated by systemic inequalities, they do believe uplifting marginalised voices in online finance communities might help. Just don’t ask them to pick the next GameStop.

*Name has been changed