The Rise of Financial “Experts”
The pandemic bred a variety of activities we simply didn’t have time for. Some good, some bad, some TBD. Working remote and not losing a drop of productivity is good. Staying in our homes too much and not getting sun could be bad.
There’s been a rise of interest in personal finance, funneled through TikTok and Instagram. Newly minted finance stars are hashing out advice with little to no experience. When the world was sheltered in place, lots of people found a new interest in stock market trading. Gamestop, AMC, or stocks with questionable business prospects were “going to the moon”. It has since evolved into cryptocurrencies, NFTs, and other obscure investible assets.
This person took out his home equity to invest into a speculative cryptocurrency and had the gall to quote Warren Buffet. “I’m greedy when others are fearful”. He’s down about 24% since the video posted on February 27. This trade isn’t verified so there’s no way to know if he actually did it. The biggest issue is the video has over 319,000 views.
Or this one with the goal of 10% gains - per day.
Or a more modest 3% per day.
Most of the investment advice is unfounded and unverified. Meaning those putting out the advice have no proof they are acting on what they are saying you should do. There are some good nuggets to be found but the overwhelming majority of advice out there is reckless. It sets up unrealistic expectations about investment returns in relation to risk.
Over 50% of people aged 18-24 get their financial advice from social media. The appeal of these trading strategies is the boom or bust nature where getting rich quick is the goal. Most of this content is laughable but our kids are the ones soaking it all up. Worse if they are acting on some of the hairbrained schemes.
Jim Cramer was my gateway into stock markets. To his credit, he was just hawking stocks the old-fashioned way by buying with money you have. The danger I see with the TikTok contingent is the amount of risk they’re suggesting. “Use leverage and buy cryptocurrency”, “Use your student loans to buy real estate”. When it doesn’t end well, these young folks can always lean on mom and dad. But what are we teaching them? Why are we so susceptible to bad information?
A lack of financial education from a young age. I’m not talking about four-year university finance classes. Help our kids truly understand what wealth is and how to have a healthy relationship with money. Understanding compound interest and how it can work for (or against) us. How spending isn’t a way towards building prosperity. The US has a financial literacy rate of 57% according to Bankrate. Good enough to be outside of the top 10 in the world where Finland (rank 10) sits at 63%.
From Mr. Money Mustache:
“In our household, money is an open subject without any attached baggage or taboos. Our 9-year old knows exactly how money is earned, what happens when you spend it (it’s gone), and what happens if you invest it instead (it works for you, for life).”
If we’re not having money conversations with our kids, someone else will.
Social media has caused us to compare ourselves to not only our peers but to the rich and famous. There’s this desire to be billionaires right out of high school. Keeping up with the Joneses is more difficult to maintain because our comparability is now expanded to everyone promoting their status online. In their mind, these things simply aren’t achievable by going to college and getting a good secure job that pays benefits. Young adults without the foundation could be more susceptible to believing this.
Disclosures
The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor.
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