This is where Gen Z goes for financial advice

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Tim Tkachenko, Chief Technology Officer and Co-founder, Qure.Finance

• Generation Z are almost five times more likely to get financial advice from social media platforms than people aged 41 or over.
• Trust, accountability and protection from scams are important attributes held by social media platforms that allow them to host the bearers of financial advice.
• In the current environment, there has been a rise of the “finfluencer” – an influencer who provides financial advice – that holds an estimated market size of $104 billion.

The new generation of investors operates at the intersection of technology and financial anxiety. Generation Z watched their parents navigate the financial crisis of 2008 and may have been affected by its aftermath. As they start their adult life, these “zoomers” are forced to cope with surging rent and home prices, rising inflation and a challenging job market.

At the same time, Gen Z is the firstborn into the golden age of the internet and technology. They grew up alongside emerging tech giants like Facebook, YouTube, and the iPhone, all of which launched in the mid-2000s. That’s why it’s natural that Gen Z is almost five times more likely to seek financial advice on social media than adults aged 41 and over.

Given these unique qualities, investment technology must be the right fit for this generation – as a tool to educate and protect upcoming investors and ensure they use it. Dedicated platforms offer a mix of trust, accountability and protection from scams and are emerging as a strong frontrunner for how Gen Z will invest.

The importance of trust

Gen Z relies on different values when evaluating their banking and investment options than earlier generations. They’ve inherited the Millenials’ lack of trust in old-school financial institutions, a trend illustrated by the follower counts of influencers – top TikTok “finfluencers” have millions. In contrast, Fidelity and Blackrock have attracted only modest numbers of followers.

This attention gap also indicates that to appeal to upcoming investors, older financial institutions must do more than pivot to newer channels hoping to attract younger investors. New platforms and apps unrelated to legacy corporations and specifically designed to appeal to upcoming investors and their needs are more likely to be trusted by Gen Z.

Also, young people want to express themselves, not just read newsletters from brokers or financial articles in mainstream media. They want to produce content, not simply consume it. Investment platforms should become places for discussion whether each user shares their ideas or feedback.

Gen Z prioritizes a personalized experience and sustainability, and views omnichannel as trustworthy – platforms built with a focus on these features are the best way to increase the financial literacy of the next generation of investors.

Inbuilt accountability

In terms of quality of advice, dedicated platforms can and do bake accountability into their operations. There are multiple ways to approach this – TipRanks tracks and measures the performance of their advisors, eToro sorts their advisors into tiers and Qure.Finance, the social investment platform I co-launched, ranks content creators based on the historical performance of their portfolios.

These accountability mechanisms are even stronger when available alongside additional information, such as the age of the account and links to social media profiles, making it difficult for poor-quality advisors to monetize their advice. By prioritizing accountability, investment platforms help a new generation of investors to perform due diligence and determine whose advice they should take.

By making accountability a key aspect of content creation, platforms invest in their investment tools’ current and future quality. New investors interested in monetizing their insights are positioned to be trusted by those they’re hoping to advise and inspire, creating a circular economy of investment advice. “Finfluencers” – influencers sharing financial insights – are a growing part of a massive content creator economy with estimated market size of $104 billion.

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By making accountability a key aspect of content creation, platforms invest in the current and future quality of their tools.”— Tim Tkachenko, Chief Technology Officer and Co-founder of Qure.Finance

The possibility of scam protection

Even digital natives like Gen Z can fall victim to a grift. More than half of people who reported losses to investment scams in 2021 said the scam started on social media. Investment scams accounted for 37% of reported losses from frauds that originated on social media in 2021.

Many social media scams involve pump and dump schemes around new crypto coins, so platforms could lower the risks for investors by curating which crypto to add. Platforms also have the power to only allow content by verified account holders accountable for their insights. These simple, tech-driven features have the potential to provide significant protection, given that United States retail investors lose about $770 million annually from fraud initiated on social media platforms.

Dedicated platforms can offer a safer environment where young investors can share their ideas and learn from finfluencers they trust instead of joining a group chat on Telegram run by unverified, anonymous contributors.

The evolving way Gen Z uses social media vs search indicates they’re more likely to trust, engage with and reliably use investment tools that function like their favourite social media. As these platforms jockey for space in the marketplace, their developers must make their function appealing to the next generation of investors and proactively incorporate features designed to build trust, hold content creators accountable and protect new investors from scams.

Gen Z is happy to use technology for investing, so it’s up to the platform creators to ensure they’ve created a safe and nurturing place for the upcoming generation of investors to learn and earn.