Disinformation and lack of confidence in traditional institutions are widespread in our society.
The regulated financial sector is no different, especially among young people. About 38% of the Zers generation obtain financial information of Youtube, and 33% of Tiktok, according to a recent Schwab survey.
As a former regulator and author of children's books on money, I am really horrified by the toxic advice they receive from these unskilled “Flumber“- Advice which, if they were followed, could damage their financial future.
The most disturbing are the finflueurs that encourage young people to borrow. A central theme is that the “chums” earn money by working hard and that The rich earn money with debt. They are supposed to become rich by borrowing significant sums and investing money from the assets that they expect to increase in value or to produce income which can cover their loans and also make a well -stored profit.
Of course, finfluencers can be a little vague on how the average person can find these wonderful investments that will reimburse their debt. Volatile and risky investments – technological actions, crypto, precious metals, commercial real estate – are commonly mentioned.
“ The road to a fast ruin 'for inexperienced investors
Unlike their claims, these finflutenurs do not peddle anything new or revealing. He just borrows to speculate.
For centuries, this strategy was continued by inexperienced investors as the path of rapid riches, while in reality, it is the way of rapid ruin. There is always “smart money” on the other side of their transactions, ready to take advantage of it. For young people who are starting, with limited income and tight budgets, this is the last thing they should do with their precious money.
The glorification of the debt is not the only bad advice to be peddled on the internet.
You can find finflutenurs who advise against diversified and low costs in favor of active negotiation (without disclosing in a coherent way showing the lower yields of active trading). Or those who discourage individual retirement accounts and plans 401 (K) as savings vehicles in favor of real estate or commercial startups (without mentioning lost tax advantages as well as heavy costs and expertise necessary to manage real estate or high failure rates among young companies).
Some encourage minimum payments on credit cards to release money for speculative investments (without mentioning the heavy interest costs of the deletion of credit card balances that consist daily).
Why do so many young people turn to these unskilled social media personalities to get help to manage their money instead of regulated and trained finance professionals?
One reason: finflueers make their advice entertaining. It may be false, but it's short and impactful. The documents provided by regulated financial services providers can sometimes be dry and technical.
Where to get confidence money advice
Xavier Lorenzo | Moment | Getty images
They can be boring, but regulated institutions are always the best resource for young people for free and free information.
Banks provided by the FDIC can explain to them how to open check and economic accounts and avoid unnecessary costs. Any large brokerage company can explain how to create a retirement economy account. This is part of their function to explain their products and services, and they have supervising regulators how they do.
In addition, the regulators themselves offer educational resources directly to the public. For young adults, one of the most used is Money SmartOffered by the Federal Deposit Insurance Corporation – an agency that I proudly chaired.
There are also many regulated and certified financial planners. However, most young people will not have the budget to pay for financial advice.
They do not have to do so if they remain simple: establish a budget, respect it, save regularly and start investing for retirement at the start in a low and well diverse stock market fund. They should minimize their use of financial products and services. The more they use accounts and credit cards, the more difficult it will be to keep track of their money.
Above all, they must ignore the unqualified “finfluancers”.
Check their identification information. Question their motivations. Most are probably trying to generate advertising revenues or sell financial products. In the case of celebrities, find out who pays them (because most likely, someone is).
Regulated finance must recover its status as a more reliable advice. The best way to do it is, well, to provide good advice. Whenever a young adult is burned by surprise banking fees, seduced in the surrender with a misleading credit card offer, or said to put their retirement savings in a high and underperforming fund, he loses confidence.
I know that regulations and surveillance are disgrace these days. But we need a way to keep bad players and practices to protect young new ones in the financial world. This is important for their financial future and the future of industry as well.
Sheila Bair is a former president of the FDIC, author of the series of books by Money Tales and the next “how not to lose $ 1 million” for adolescents. She is a member of the CNBC Global Consultative Council for financial well-being.
