Financial Misinformation and Social Media: 5 Questions to Ask Before Spending Money

We all know that we should be careful about what we read on social media; everything people post isn’t always true or accurate. But just because we know this doesn’t mean we can’t still be swayed, tricked or persuaded into doing things we normally wouldn't. Because of this, it’s especially important to consider how you may be influenced when it comes to financial misinformation.

Falsehoods and empty promises are out there, in the form of bone-headed tweets and posts about the latest tips regarding stock, investments, bank accounts, credit cards and loans.

It’s gotten worse over the last decade, says Andre Jean-Pierre, an investment advisor and managing director at Aces Advisors Wealth Management in New York City.

“Over the past ten years, I’ve noticed more and more people relying on social media for their investment and financial advice,” says Jean-Pierre.

He thinks that this is partially due to the pandemic.

“I believe that the DIY investor crowd, combined with a higher social media usage early in the pandemic, created the perfect environment for the rise of the social media ‘finfluencer,’” Jean-Pierre says, using a word that’s been coined to describe social media influencers giving financial advice to their followers.

Some of the advice, Jean-Pierre says, has been on-target, which, of course, only deepens the bond between finfluencers and their followers. But Jean-Pierre is also quick to note that plenty of financial advice that goes viral is inaccurate.

So if you spend a lot of time on social media, and if you believe you sometimes make your financial decisions about topics like investments and credit cards, based on what you’re reading (as, of course you do; we all do), you’ll want to first ask yourself a few questions.

Why is this important? Because virtually every financial decision is driven by psychology. Yes, there are a few spending decisions that aren’t based on your behavior, habits or personality. For instance, you aren’t going to spend a significant amount of time thinking about paying your DMV registration or water bill, since these are competition-free markets, meaning, no one is trying to persuade you to pay these. But just about everything else you spend money on involves psychology, from the clothes you buy or the vacations you take, to the house you purchase or the apartment you choose to rent.

Even food choice is impacted by psychology. Well, especially food. You have to buy food to live, but the types of food you purchase — healthy foods, snack foods, cheap foods, decadent foods — is all rooted in how we’re feeling about ourselves or our families at the time.

So if you spend a lot of time on social media, you may easily find yourself emotionally impacted by what you’re seeing friends and family spend money on, and yes, that could influence a number of your financial decisions.

A recent real life example has been playing out on the social media site TikTok with “dropshipping.” Influencers on the site have been pushing the idea that you, too, could make six figures through a drop shipping business, where you advertise products and send them to customers, earning money through your online store without ever having to actually handle the merchandise yourself. It’s not that it can’t be done, but a lot of influencers are actually making money with traffic, convincing would-be entrepreneurs that it’s easy to become rich this way.

You’ve just read an article on social media about investing, and now you’re going to put some money into commodity futures or maybe a new cryptocurrency.

Maybe the article is brilliant and right on target. But did you pay attention to the publication that published this information? Was it a credible financial publication such as — ahem — the one you’re currently reading? Or were you reading somebody’s personal blog? Blogs can be a credible source of information if the author is a verifiable expert on the topic. But if you aren’t familiar with the author’s credentials, be mindful. You could unknowingly be taking advice from a TikTok or internet celebrity who’s net worth is determined by their platform’s traffic.

Look at it this way. If you’re single and dating, you wouldn’t go out somewhere with a complete stranger. You would look the person up first, or at the very least, meet in a public place. You would try to learn something about the person to ensure that they won’t bring you harm.

If you’re going to take advice based on something an article tells you, vet the article — just like you would if you were going on a date with a random stranger.

It isn’t only the source of the information on social media that you need to be concerned about. You also need to think about who is posting this brilliant financial article that you’re enamored by. Was this posted by your trusted and wise grandfather who is a former financial advisor or your hotheaded cousin who can’t hold down a job and once lost a fortune as a day trader?

For instance, recently the Better Business Bureau put out a warning of a con artist posting a video on TikTok (yes, TikTok again) of a guy with a lot of cash. He claims that he made it in a few days from investing in cryptocurrency and he can do the same for you. Once you message the con artist, you’ll be asked to send money through PayPal, Zelle or Venmo — because, you know, it’ll be invested in cryptocurrency. Or you may be asked to buy cryptocurrency and send it to the “investor,” so that it’ll be invested. Either way, you’re not about to become rich.

Of course, you’re probably thinking, “Well, I’d never be dumb enough to do that.” Fair enough. But if you end up investing in a reputable cryptocurrency platform, based on something you read on social media, and you lose all of your money, are you any better off?

The takeaway isn’t that you should never invest in cryptocurrency but that you should consider who is offering the advice on social media.

Of course, the problem is that most things posted on social media are fleeting. It’s very easy to read an article or watch a video posted by a family member, friend or acquaintance and then immediately forget who posted it in the first place. This is one of the rabbit holes of social media; we’re able to consume information at a faster rate than we’re able to fully process it.

FOMO, or fear of missing out, is a commonly experienced sense of having lost something, an experience, opportunity, product, etc., without ever having it in the first place.

It’s easy to experience FOMO on social media. While sometimes family members, friends and acquaintances post things about getting sick or having a bad day, it always seems like more people tend to post the good stuff, like photos of their new boat, without the disclaimer that they’re also getting sued for careening their new boat into a floating restaurant.

We all tend to share good news on social media, which is great. We could all use good news in our lives. But think about that old expression, “don’t try to keep up with the Joneses.” It originated in 1913, with an old comic strip called Keeping Up with the Joneses, and it was a saying that was meant to discourage people from trying to emulate their neighbors. Live your life; don’t worry about how others are spending money or living their lives.

Not trying to keep up with the Joneses is sound wisdom, but if you think about it, it may be possible to keep up with the Joneses, provided you both make the same yearly income. But what is impossible is keeping up with the Smiths, the Johnsons, the Rodriguezes, the Khourys and everybody else in your various social circles. You can’t possibly keep up with everybody, and if you try, you may end up going into debt, buying a boat you can’t afford and only later realizing that you’re not even a boat person.

Like, maybe you get sea sick or just aren’t into the smell of boat wax.

The FOMO phenomenon made national news a couple years ago. You probably remember when a lot of people on the social media site Reddit got investors excited about investing in the video game retail store GameStop, sending its stock surging. That is, until it plummeted. A lot of individual investors got rich, but plenty of innocents, late investors not wanting to miss out, were financially devastated.

This is probably the most important question you can ask yourself, and exactly what you should do, before making almost any purchase. Again, if you’re making an annual payment to the DMV, you probably don’t need to ask yourself a lot of questions. Simply, make the payment. But, if you’re thinking of investing in cryptocurrency, future contracts or a timeshare, you’ll want to do your research first.

The more information, the better. Find out as much as you can through your favorite search engine, asking questions, like, “are timeshares a scam?” Or typing phrases like “cryptocurrency fraud,” if that’s what you’re interested in. Much of the financial advice on social media is bite size, reduced to 30 second videos on TikTok or 120 characters on Twitter. You want more than a taste of financial information. You want an entire meal.

So read articles from trusted sources about the financial issues you’re interested in. Talk to your financial advisor. If you don’t have a financial advisor, consider getting one. Or, sure, ask… sigh… ask your friends and family on social media for their thoughts.

But the important thing is that you think — think about what you’re getting into before you spend money based on information you find on social media. If you don’t, you really could miss the boat, or worse, buy one.