I recently received an email from Moneywise Digest discussing the fact that over a quarter of Gen Zers receive their advice from social media according to the National Association of Personal Finance Advisors (https://www.napfa.org/social-media-survey).
Celebs are promoting financial products to their fans
Celebrities and Youtube and TikTok influencers often generate income from sponsored posts and paid partnerships on their social media platforms.
Kim Kardashian made headlines recently when she was fined $1 million by the U.S. Securities and Exchange Commission (SEC) for not disclosing that she was paid $250,000 to promote a crypto asset. She’s also agreed to not promote any crypto assets for three years.
Under the current federal securities laws, anyone who promotes crypto assets “must disclose the nature, source, and amount of compensation they received in exchange for the promotion," said Gurbir S. Grewal, director of the SEC’s division of enforcement, in a press release detailing the charges against Kardashian earlier this month.
But it’s hard to regulate how content creators advertise, and the ones who have smaller audiences may not think they’ll face repercussions, says Lorenz.
“It's unclear when things are even an ad, it's really tough to police.”
The problem with crypto endorsements
Giving out financial advice or promoting products is just another way for content creators to monetize their audiences, says Lorenz. While many promotions are above board, less scrupulous influencers can intentionally or unintentionally cross the line.
“They partner with financial crypto firms, or they release their own tokens in ‘pump and dump’ schemes,” she explains. “But all of these things are definitely a problem on the internet.”
The FTC found that 1-in-4 people who reported losing money to fraud last year said it started on social media, amounting to about $770 million in losses. People aged 18 to 39 were also more than twice as likely as older adults to report losing money to these scams.
And crypto fraud losses from January 2021 through March 2022 totalled over $1 billion.
Lorenz believes there needs to be more guardrails in place to protect not just teens, but people of all ages from falling prey to online scams or dubious financial investments.
“The celebrities fundamentally don't seem to care,” says Lorenz. “The problem is it's their followers who are left holding the bag.”
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(Contributions from Moneywise Digest, CFP.net and the National Association of Personal Financial Advisors.)