By: Lee Hancox, Head of Channel and Segment Marketing at Sanlam

Increasing numbers of children are taking investment advice from financial influencers!

A finding in the 2024 Investing in the Age of Social Media global report that nearly 40% of US and UK Gen Zs base their investment decisions on financial influencers or ‘finfluencers’ supports the call for caution and meaningful guidance to avoid decisions based on potential biases in limited expertise. Lee Hancox, Head of Channel and Segment Marketing at Sanlam says a cautionary approach is further justified by statistics showing that 36% of finfluencer advice contains investment promotions, and 80% of recommendations don’t disclose the finfluencer’s professional status or whether they receive recommendation commissions.

“In today's digital age, Gen Z and Alpha are learning about money in ways vastly different from previous generations. With the rise of 'finfluencers' across social media platforms, young people increasingly turn to these online personalities for financial advice and insights. However, young investors must understand the potential biases and limitations of finfluencer content.”

Here, Hancox helps parents navigate the digital financial education landscape to help their children make healthy money decisions.

The double-edged sword of finfluencer advice

Hancox says young adults should be discerning about who to follow and what advice to take from them. “Parents and young adults need to look beyond the number of followers and examine finfluencers’ qualifications and backgrounds. People having lots of followers doesn't necessarily mean they're giving you the right advice."

She advises parents and young adults to be wary of several red flags regarding finfluencers, including:

1. Get-rich-quick schemes: She warns that if it sounds too good to be true, it usually is. “Be sceptical of any finfluencer promoting strategies that promise unusually high returns in a short period. Legitimate investing typically requires time and patience. If someone offers a way to ‘get rich quick’ with little effort or risk, it's likely a scam or high-risk venture.”
2. Promises of secret investment strategies: Hancox encourages young adults to question why a finfluencer would share their huge money-making secret for free. “Be cautious of finfluencers claiming they have exclusive knowledge or ‘insider secrets’ that will guarantee financial success. Sound financial principles are well-known and freely available, and valuable investment strategies don't need to be shrouded in secrecy.
3. Lack of proper qualifications or relevant experience: She encourages young investors to check the finfluencer’s experience and qualifications. “Many popular finfluencers may not have formal financial education or professional experience in the finance sector. While this doesn't automatically invalidate their advice, it's important to consider the source of their knowledge. Be particularly cautious of those giving complex financial advice without proper credentials or a track record in the financial industry.”

Hancox says parents and young investors should conduct their research and not take finfluencer advice at face value. "It could be quite a costly mistake if you put money into some sort of scheme or invest your child's money in something that someone on a TikTok video has mentioned, and you haven't done the due diligence in the background."

She encourages young investors to follow finfluencers who are transparent about their qualifications, provide balanced views on financial topics, and encourage followers to consult professional financial advisers before making significant financial decisions.

Balancing digital and traditional financial education

While embracing digital tools, Hancox says parents shouldn't abandon their responsibility to teach their children about finances. "It shouldn't just be a 'well, here's a phone, you go figure it out' type of thing. Instead, parents should look for teachable moments in everyday life.”

For younger children, Hancox says this could involve setting up a pretend store at home or playing board games like Monopoly. For older kids, it might mean involving them in family financial discussions or helping them set up their first budget.

She also stresses the importance of open conversations about money within the family. "We need to get better at talking to our kids about finances from a young age. This openness can help children develop a healthier relationship with money and better understand its value.

The role of professional financial advice

While digital resources can be valuable, Hancox emphasises the continued importance of professional financial advice. "You'll always need that human element from a financial adviser’s empathy, understanding, and personalised guidance that algorithms cannot mimic.

This is particularly important as young people transition into adulthood and face more complex financial decisions. A financial adviser can help them navigate these challenges while considering their unique circumstances and goals.

Hancox says the goal is to help children develop good money habits that will serve them well into adulthood. She suggests several strategies to achieve this:

1. Start early: Introduce financial concepts when children understand basic math.
2. Be consistent: Regularly reinforce good money habits.
3. Lead by example: Demonstrate good financial behaviour in your own life.
4. Encourage saving: Help children set savings goals and help them work towards them.
5. Teach delayed gratification: Help children understand that some purchases require planning and saving.
6. Discuss money openly: Create an environment where money conversations aren't taboo.

Hancox notes that teaching good money habits is an ongoing process that requires consistent effort. "It's about patience, persistence, and repetition.”

A balanced approach to financial education

As Gen Z and Alpha navigate an increasingly digital financial landscape, a balanced approach to financial education is crucial.

Hancox concludes, "While finfluencers and digital tools can provide valuable insights and engaging ways to learn about money, they should complement, not replace, traditional financial education and professional advice. By combining digital and traditional approaches to financial education, we can help the next generation build a solid foundation for financial success and live with confidence.”