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As TikTok bans investment ads, why you shouldn’t get financial advice from social media

close up of young woman using smart phone

Last month, TikTok cracked down on influencers promoting financial services and products.

Designed to halt the increase in unsuitable high-risk investments and frauds being promoted through social media platforms, the new rules prevent promotion of cryptocurrency investments, share trading, foreign exchange, “buy now, pay later” products (such as Klarna) and a range of other investment ads.

Prior to the ban, TikTok was full of influencers giving advice on investing in cryptocurrencies and shares. Young people were too easily exposed to bad advice, which risked them losing their hard-earned money.

Making poor financial decisions is part of growing up

Most of us will recall having made some poor financial decisions in our late teens and early adulthood. Many of us learned important lessons from these mistakes. But, hopefully, for most, they were painful rather than catastrophic.

Multiple digital platforms expose young people to potentially questionable advice and plenty of fast ways to lose money.

Social media gives people access to a seemingly endless amount of information, and fraudsters have a ready audience to peddle false financial advice to, which could badly harm your financial situation, not to mention your financial wellbeing.

Be wary of promises of high returns in a short amount of time

Young people are more likely to fall for tall financial tales simply because they are inexperienced.

Perhaps one of the most important lessons you can teach the young people in your life is about the value of compound growth.

With an understanding of how investments work and how compounding is the bedrock of long-term financial growth, even inexperienced would-be investors could sniff out a “get rich quick” scheme as rubbish.

If you don’t talk to your children about finances, someone else will

There’s no doubt that we need to do more to protect young people from making poor financial decisions, and that must start with education.

If children don’t get taught about money in school and are reluctant to turn to their parents for advice, we can hardly be surprised that social media captures their attention and sparks a potentially harmful interest in the wrong kind of investment strategy.

The Young Persons’ Money Index tracks take up of finance education in UK schools. The annual survey has been ongoing since financial education was added to the national curriculum in 2014.

In 2020/2021, they surveyed more than 2,000 young people between 15 and 18. The latest findings revealed that:

  • 75% said most of their financial knowledge came from their parents. Only 8% cited school as their primary source of financial education
  • 67% worry about money, and this figure increases to 82% for 17- to 18-year-olds
  • 59% said Covid-19 had made them feel more anxious about money
  • 83% want to learn more about money and finance in school.

If you’re worried about your children being influenced by social media and making poor financial decisions, get in front of the problem and start educating them about how investments work, and about financial products, and how they should be used.

If you’re keen to help give your children vital financial lessons, you may find these 7 practical financial lessons you can teach children and grandchildren a useful starting point.

4 ways to spot fraudulent investment advice

  1. If an investment opportunity requires you to recruit other investors, this is a pyramid scheme and should be avoided. The only winner is the person at the top of the pyramid.
  2. If an investment doesn’t specify how it earns returns, be sceptical. Do you understand the underlying asset you’re investing in? If the fund has a high percentage of assets in equity, you should expect exposure to market fluctuations, but this kind of investment is only likely to show returns over the long term and could be too risky, especially for novice investors. If you want to invest in the stock market, consider using ISAs or unit trusts, which are regulated and invest your funds according to industry sector or geography. ISAs and unit trust factsheets are readily available and explain exactly how individual investment funds work.
  3. Don’t go up against the clock. If there’s a time limit in which you can invest, be cautious. It may be because scammers don’t want to allow time for you to research the investment “opportunity”.
  4. If the investment isn’t registered with a financial body, such as the Financial Conduct Authority, it is unregulated. This is a massive red flag and should be avoided at all costs.

Steps towards practical and informative financial content

Even before the ban on investment ads, TikTok had teamed up with Citizens Advice to create content on how to make informed financial decisions. Videos include information that demystifies financial jargon and helps educate users on how to handle their finances and how to spot financial misinformation.

However, if you want to invest, the best course of action is to take advice from a professional financial planning expert.

Get in touch

Get rich quick schemes on social media are often no match for proper financial advice from a qualified planner. Find out how we can help you to achieve your goals – email hello@sovereign-ifa.co.uk or call 01454 416653.

Please note

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

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