Retail investors who use social media or follow financial influencers – known as finfluencers – are significantly more likely to fall victim to investment fraud than those who don't, according to a new research brief from the Financial Industry Regulatory Authority's Investor Education Foundation.
The report, drawing on data from the foundation's 2024 National Financial Capability Study Investor Survey, found that 29% of retail investors reported using social media or message boards to inform their investment decisions – a figure that climbs to 60% among investors aged 18 to 34. Twenty-six percent reported making investment decisions based on finfluencer recommendations, with that proportion hitting 61% among younger investors.
Among the 11 social channels in the FINRA study, YouTube was the most prominent, cited by 30% of respondents, followed by Reddit (15%) and Facebook (14%). Among those social media users that also followed finfluencers, 77% said they were on YouTube, with another 51% citing Instagram, 49% for Facebook, 47% on Twitter/X, and 46% on Reddit.
The investor profile for digital users is notably distinct from the broader market. While the study didn't explicitly call out the "manosphere" community – the subject of an investigative documentary that dropped on Netflix last month – it noted that social media users and finfluencer followers were predominantly younger and male investors, held lower portfolio values, and were more likely to be people of color.
Nearly half reported not identifying as "typical investors" – a finding the brief suggests may point to social media filling a representation gap for groups historically underserved by traditional financial channels.
In one of the more striking findings, FINRA found a divergence between what these investors know and what they think they know. Social media users answered 42% of questions correctly on an objective investment knowledge quiz, versus 47% for non-users. Finfluencer followers scored similarly at 41% correct.
Despite those lower scores, both of the digitally confident groups rated their own financial knowledge higher than non-users and non-followers did – a pattern the report characterized as indicative of "overconfidence in investment knowledge."
The plot thickens further when examining how these investors gather information. Social media users drew from an average of 7.6 out of 10 sources compared to just 4.0 for non-users, and 36% reported verifying the background or registration of a financial professional with a state or federal regulator – more than double the rate of non-users at 14%.
The story repeats for finfluencer followers, who reported 7.5 sources compared to 4.2 for the average non-finfluencer follower. A large 41% plurality of finfluencer followers also reported doing background checks on financial professionals, versus 13% of non-followers.
By most measures, digital investors were doing more homework. But that due diligence did not produce better fraud outcomes. Among investors who reported being targeted for fraud, 68% of social media users and 69% of finfluencer followers said they lost money, compared to 29% of non-users and 26% of non-followers.
The data showed fraud losses and the inability to detect red flags "were significantly more likely among social media users and finfluencer followers – even when controlling for other factors, including investment knowledge and age." Among those who reported losing money to fraud, the most commonly used platforms were YouTube at 79%, TikTok at 70%, and Instagram at 67%.
The data also reveal a broader range of motivations behind social media-influenced investing. Fifty-nine percent of social media users cited entertainment as a reason for investing, versus 18% of non-users. A similar 59% cited social connection compared to just 11% of non-users.
Read more: Northwestern Mutual: ‘Financially behind’ young investors turn to prediction markets, sports betting
Those non-monetary drivers may help demystify why these platforms draw in newer market participants – and why those participants can remain vulnerable to fraudulent content.
"Although social media may be successfully engaging a new population of market participants," the brief noted, "these investors may also face elevated fraud risk due to knowledge gaps."
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