Financial literacy is defined by the U.S. Financial Literacy and Education Commission as “the skills, knowledge, and tools that equip people to make individual financial decisions and actions to attain their goals.” The U.S. National Strategy for Financial Literacy sees financial education as “key to unlocking the foundations of economic opportunity and powering a strong and resilient economy.” When combined with access to financial products and services, financial literacy translates to financial capacity. Clients who understand financial topics and can participate in informed conversations with their financial advisors are necessary for the client-planner relationship.
The Essential Role Of Financial Advisors
Financial advisors play a pivotal role in providing financial education. Many advisors incorporate education into their practices, and organizations such as broker-dealers, carriers and firms are committed to client education. The content is characterized by oversight, regulation, compliance approval, disclosures, accountability for accuracy and a duty of care. If consumers today choose to learn about financial topics from social media, will they encounter advisors that are held to these high standards, have proper licensing, education and required professional development?
The Impact of Social Media On Financial Education
The CFA Institute's 2024 study, "The Finfluencer Appeal: Investing in the Age of Social Media," highlights the influence of social media on Gen Z investors. "Finfluencers" (Finance Influencers) are gaining popularity due to their relatability, engaging content, accessibility and perceived trustworthiness. The study found that 60% of U.S. investors aged 18 to 35 use social media for investment information, compared to 35% for ages 35-54 and 8% for those aged 55+. The percentages of Gen Z investors using social media to learn about investing are 48% in the U.S., 53% in Canada, 44% in the U.K. and 41% in China. Of the same groups, 37%, 30%, 38% and 51% respectively, cited social media as major drivers of their investing.
The study expressed concern for Gen Z investors as they typically display more investment risk, lower levels of financial literacy, and had difficulty assessing the quality and appropriateness of investment information. The current finfluencer literature shows several risks for consumers, including hidden marketing, outdated information and misrepresentations of expertise and success.
CFA Institute’s Recommendations For Financial Education
The study then recommended several actions for educators and financial information providers:
1. Increase financial literacy initiatives.
2. Enhance individuals' ability to critically evaluate information, including the motivations and qualifications of sources.
3. Financial advisors should position themselves to attract new generations of investors.
If clients don’t get their knowledge from financial advisors, they are increasingly getting it from social media. With predictions that social media users will near six billion by 2027, finfluencers are likely to become an even more significant resource in investment decision-making. It is crucial that legitimate financial education seizes on connectivity to prevail globally.
Financial advisors can take specific steps to enhance financial literacy:
1. Early Education: Start providing financial education early. Programs like "Financial Planning for High School Students" can lay a timely foundation for teens, preparing them for college and future careers. This education often involves parents and siblings, making it multigenerational.
2. Educational Workshops: Incorporate educational workshops as part of marketing activities. For example, Alison Fleming CFP, president of Lumena Financial Services in San Diego, offers live events and webinars, with a monthly schedule covering financial topics from basic planning to sophisticated subjects. A “Financial Literacy Hub” on their website further supports financial education.
3. Community Involvement: Stay informed about educational programs in schools and communities, or pending legislation, and offer professional assistance. This not only serves the community but also enhances the visibility of the advisor's practice.
Conclusion
There is an imperative for legitimate financial education to prevail. Financial advisors are in a unique position to provide visible pathways to financial knowledge for clients and their families. The time is now for advisors to actively engage in financial literacy initiatives and ensure that their clients and communities are well-equipped to make informed financial decisions.
Dr. Daralee Barbera, CFP, CLF, ChFC, CEPA, CPMBC, is program director of graduate leadership at The American College of Financial Services, assistant professor of leadership, and the George G. Joseph and Richard A. Liddy chair in practice management and leadership.