Financial scams are rife right now. It’s always the way when times are tight, and the cost-of-living crisis continues to make its mark. From impersonation and account takeovers to phishing and investment fraud, there are bad actors trying their hand in every area imaginable, and financial education is no exception. From cryptocurrency to stocks and shares, financial education promises a proactive way out of financial woes; it can feel like the responsible path to take when you’re struggling. But the scammers have got there too. So, before you decide to do anything with your money, you must learn how to identify the people and the ploys intending to take it away from you. 

What do financial education scams look like?

Financial education scams come in a range of guises, but there are four particular models causing the most trouble at the moment. You have the people selling products that promise high returns for very little effort, the brokerage scams, and the education scams. And then, perhaps the most prevalent of them all, are the “finfluencers” who pepper the social sites with “financial advice” that doesn’t uncover the whole picture. It may not be posted with malicious intent, but it also rarely has any grounding in reality, and people are losing money because of it. So, why do you find so much bad financial advice on social media?

The problem with taking financial advice from social media

The algorithm is out to get you

Whatever social media platform you use, its algorithm will be designed to deliver the most popular content. Because the more you like the content, the more you’ll use the platform. So, if a post goes “viral” the algorithm delivers it to more and more people. Which usually means that we get to see the cute, sensationalist, ridiculous, or funny posts. We don’t get to see the dull, accurate, carefully-formed-through-years-of-private-and-professional-experience financial advice that could help us.

Exposure builds trust

If you pass someone on the street once, you’re unlikely to remember them. Pass them every day, and they become familiar. You share a smile, maybe nod at each other. If they suggest you change your route one day for a plausible reason, you’re more likely to trust them than you are the total stranger. It’s the same with social media. If you see something often enough, it’s easy to start believing it. And thanks to the algorithm, you’ll see the popular advice the most, even if it’s not accurate. 

There’s no regulation

Genuine financial advisers are regulated. Governed by a code of ethics, they can’t just post advice online because they understand that financial advice needs to be tailored to each individual’s specific circumstances. Finfluencers have no such limitations.

How to find a safer path to financial education

Get your finances in order. It doesn’t matter what your personal circumstances are, before you think about any kind of investment – crypto, stocks, property, art – build up some savings. Scammers prey on people who have urgent need. They know that they’re desperate, and they take advantage of that. By starting to save, even if it’s £10 a week, you can help to ease that desperation, giving yourself some breathing space to make better decisions. That way, if you take your time and ultimately decide that investing isn’t for you, you’ll still have money in the bank and be in a better situation than you were when you started. There’s quite a lot of research to support this, showing that people who save a larger percentage of their income every month are less likely to fall for bad financial advice.

Once you’ve built yourself a financial buffer and decide that you do still want to learn how to invest, you then need to think about the Three Verification Principle. In other words, use three different ways to look into the veracity of any investment prospects. I usually suggest checking out their online reputation, using Trustpilot and Reddit to find genuine customer reviews – but only where the site or person has had more than 500 reviews, ideally 1,000+. Platforms like Grok and ChatGPT can help you to do a reputational search. And you can look to see if the person or business is registered and regulated.

It's worth knowing that educational businesses aren’t always regulated because there’s no legal requirement for them to be. But they should always be related to a regulated entity. That means that they have to show you the average result of all their students and provide a way to verify each one. They also have to show you both the good and the bad customer reviews.

Know what to expect

If you’re serious about progressing through financial education, it’s important that you go into it with your eyes open. That means finding out what’s involved, what it costs, what you’ll need to do, how long it will take you, what you will get from it, and the likelihood that it will benefit you. Trading education is never quick, and it can never promise overnight wealth. So, if someone is trying to hook you in with big, instant wealth-building promises, they’re likely not telling you the entire truth. In reality, financial education is typically three times more difficult than you imagine, and results will take three times longer than you’d hope. As long as you’re prepared for that, you can make an informed decision.

Financial education can change your life, but there are no quick fixes. The scams are there because people are willing to fall for them. Knowing what to look for is your first line of defence.

Zack van Niekerk is the co-founder and CEO of The Trading Cafe, an education company founded in 2022 with Peter Visser, focused on building systems that allow students to get real results in learning to trade the financial markets.