In May 1997, Andrew Weinreich launched a website called Six Degrees, widely considered to be the first social media platform. While we see them as common these days, features such as personal profiles and friend lists were a novelty for users.
Six Degrees didn’t survive because, in 1997, there simply weren’t enough people online to help the platform take off. However, it still laid the foundations for social media giants such as Facebook, Instagram, and X (formerly Twitter).
Since Weinreich first introduced the idea with his website in 1997, social media has become a central part of our lives.
According to Statista, 94% of Gen Z and millennials use social media. The reach is smaller among baby boomers but 74% still use at least one platform. Additionally, 73% of people surveyed said they use social media every day.
So, you may be likely to use and enjoy social media in some form on a regular basis, yet you might not realise this could affect how you manage your money.
Read on to learn how social media use could influence your financial behaviours.
Online “finfluencers” could give you harmful advice about your wealth
On 3 July 2024, Biggs Chis, Jamie Clayton, and Rebecca Gormley – all former stars of the reality TV show Love Island – found themselves in court, accused of “promoting an unauthorised trading scheme”.
According to the Financial Conduct Authority (FCA), the reality stars were part of a group of online personalities paid to promote an Instagram account that gave unauthorised advice about the buying and selling of contracts for difference (CFDs) – a high-risk investment product.
Cases like this are becoming more common as we see a rise in “finfluencers” – financial influencers – on social media. These are often people with no background in finance, and they may not follow FCA guidelines about the fair promotion of financial products and services.
As a result, much of the advice they give could be ill-informed. Additionally, their guidance isn’t based on your own unique financial goals. This means that, if you follow their advice, you could make decisions that don’t align with your financial plan.
Further to this, some finfluencers might knowingly promote scams on social media. Unfortunately, they may present themselves in a very professional way and use advanced tools to make themselves appear legitimate.
For instance, there has been an increase in “deepfakes” – incredibly convincing digitally altered videos – of popular TV personalities such as Martin Lewis, pushing scam investments.
That’s why you may want to ignore any advice you read on social media, and work with a qualified professional who has your best interests at heart.
An influx of news and analysis from “experts” could influence your decisions
Letting emotions guide your decisions is one of the biggest mistakes you can make as an investor. Unfortunately, during a period of volatility, media personalities and social media users often speculate about market movements and this can encourage you to make more panicked, irrational decisions.
For example, when the Covid-19 pandemic gripped the world and many countries entered lockdown, demand for oil plummeted. According to Reuters, Shell CEO Ben Van Beurden declared: “Demand will take a long time to recover, if it recovers at all”.
By April 2020, the price of a barrel of oil had dipped below $0 as sellers had to pay vendors to get rid of it for them. It appeared Van Beurden’s prediction would come true.
At this stage, you might’ve panicked and sold any investments in the oil industry. After all, one of the top industry leaders warned that prices might not recover.
Yet, two years later, the price of a barrel of oil had increased to $100. Those who held their investments would have seen the value continue growing, while those who sold when prices fell could have lost out.
This example demonstrates that the opinions of “experts” are not always reliable and even the Shell CEO couldn’t predict the future of oil prices.
Social media can be very harmful for investors because it gives everybody a platform. This means that there may be thousands of people around the world claiming to be experts and presenting their opinions as facts.
Users are also exposed to a 24-hour news cycle on many online platforms. As a result, social media creates a huge amount of “noise”, which could cloud your judgment, increase anxiety, and cause you to deviate from your investment strategy.
It’s important that you’re able to recognise this noise and ignore it. As an alternative, you may benefit from developing a long-term investment strategy and sticking to it, despite any short-term volatility or warnings from social media “experts”.
Targeted advertising coupled with “quick buy” and “flexible payment options” may encourage overspending
Social media platforms have long been used to advertise products to consumers. By collecting information about your preferences, companies can create targeted adverts, showing you products that you’re likely to be interested in.
Yet, some platforms go a step further and allow you to buy these products directly in the app. For instance, according to Instagram, half of people surveyed said they use the Instagram app to shop on a weekly basis.
The targeted nature of the adverts, as well as the quick buy options in the apps, mean that you may be more prone to making impulse purchases on social media.
Additionally, there has been a rise in flexible payment options, allowing you to spread the cost of items over several months. Services such as Klarna can be used for all kinds of products from an expensive TV to takeaways or trainers.
These “buy now, pay later” services further reinforce the idea that you should make purchases instantly, regardless of whether you can comfortably afford them or not.
Unfortunately, more consumers are being encouraged by the availability of buy now, pay later schemes, as the Independent reports that the flexible payments industry is worth £30 billion in 2024.
As such, regular social media use could encourage impulsive behaviour and overspending. You may need to be aware of this and question purchases before you make them. Consider whether you really need the item, and if it will improve your life in any meaningful way.
Often, you’ll find that closing the app and stepping away for a moment will give you clarity and you’ll realise that you don’t need to make the purchase – it was simply an impulse.
By making yourself more aware of how social media affects your behaviours, you could avoid making decisions that don’t align with your financial plan.
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We can help you manage your financial behaviours and work towards your long-term goals.
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Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
The value of your investments (and any income from them) 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.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
