Kim Kardashian, a social media star and social media guru was fined $1.26million by the Securities and Exchange Commission for failing to reveal that she had been paid via Instagram to promote crypto tokens. Gary Gensler, Chair of the Securities and Exchange Commission (SEC), stated that celebrities should be reminded by the law to inform the public about how and when they were paid for their investment advice.
Gensler also stated, “We encourage investors consider investment’s possible risks and opportunities in light their own financial goals.”
Unfortunately, many young people – those in Generation Z – are all too often turning to social media over other sources for investment advice. Celebrities and influential people are often not open about being paid for promoting crypto or other investments. They also frequently fail to warn investors of potential downside risks.
It is important to question why Gen Z is following such social media advice.
In many cases, it is simply where they’re seeing the claims that they can make money – and many have little experience in investing. MoneyZine.com has released a report that shows Gen Z is five-fold more likely than older generations to receive financial advice through social media.
Luke Eales CEO of MoneyZine.com stated that “Gen Z is more likely to use social media than any other age group.” “Gen Z are a digital-first generation – the first generation to have grown up with instant access to the Internet. This is why the social media bite-sized format has a lot to appeal to them. It allows them access information via their phones and allow them interact directly.
One reason that younger generations are using social media to communicate is their distrust in traditional media.
Eales explained in an email, “Research revealed that more than 50% of Gen Z respondents and millennial respondents considered misinformation a major issue.” Eales explained via email that social media allows you to make connections with people and not just faceless media organisations.
The ability to connect with people personally and to build trust in their opinions is a huge selling point. This has the downside that influencers can be given too much power and responsibility. They may not make wise decisions.
“Many of these social media stars on TikTok and YouTube are luring followers with questionable advice for how to make money fast – with eye-popping screenshots showing dramatic results,” warned Susan Schreiner, senior editor/analyst at C4 Trends.
Schreiner added that financial freedom conveys the message, “If I can do it, so can you.”
Are the Platforms Doing Enough
Companies that use social media have already dealt with spreading misinformation, hatred speech and disinformation. Experts agree that they should do more. However, the service is failing in a lot of areas such as addressing poor investment advice.
“Certain types of financial information – such as promoting investment services, cryptocurrency, and other financial services – need to follow certain guidelines issued by the relevant regulatory bodies,” said Eales. It is up to the consumers to confirm the authenticity of financial advice that they receive via social media.
Kim Kardashian may have been fined a mega-fine by SEC, which could signal that there is an end to the “wild west” days of investing advice via social media.
Eales said that regulations regarding advertisements on social media have been more stringent in recent years.
“Celebrities and influencers alike can face hefty fines and lawsuits if they do not comply with advertising guidelines on their social media platforms – such as clearly disclosing when a post or story is a paid ad,” Eales continued. Eales said that celebrity financial advisors will continue to offer their services through paid partnerships provided that they are formatted correctly.
Social media can be used to spread information to young investors about their diligence. Celebrities are being targeted by the SEC for being too open about their problems. These stories have become viral. This could be a sign to Gen Z that Instagram and TikTok are not the right places for them to seek advice about their investments.