Social Media May Make Investors Feel More Confident Than They Should be
hubie writes:
Relying on social media for investment advice linked to higher confidence but lower actual knowledge:
Investment advice is only a scroll away. But new research from the University of Georgia suggests social media may leave some investors feeling more knowledgeable than they actually are.
The researchers found people who relied on social media to guide their investment decisions felt very confident in their investment knowledge. But they struggled to answer basic questions on investment-related topics like corporate stocks and selling short.
People who gleaned their investment information from traditional media, such as newspapers, magazines, TV and radio, felt like they knew their stuff and actually did.
"People have a lot of ways to access information now," said Xiaoyuan Sun, first author of the study and a doctoral student in UGA's College of Family and Consumer Sciences. "But if they're getting their investment information off social media, they probably don't know the deeper things. They don't know how it works, and they cannot verify that an investment product is the right fit for them."
"Basically, we find that when people are using social media, it increases their confidence but not their real knowledge," added Swarn Chatterjee, corresponding author of the study and a professor of financial planning, housing and consumer economics.
[...] That doesn't mean social media is all bad news for investors. Platforms like YouTube and Reddit make financial information easier to find, especially for people who may have previously found investing intimidating or confusing.
"In some ways, social media is democratizing that," Chatterjee said. "So it's helping expand access to people."
But easier access doesn't always mean better information.
Financial professionals have rules and regulations that govern what they do; people on social media don't. On social media, anyone can offer financial information or opinions. And while short videos and posts can make complicated topics easier to understand, details can get lost along the way.
The researchers aren't telling investors to delete their apps. But they do advise consumers to get better at questioning the financial information they find there.
Chatterjee compared it to searching for medical advice online. The internet might give you an idea of what's wrong, but you should probably consult a doctor before making an important medical decision.
The same principle applies to money.
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