The choices we make – the things we buy, the neighbourhoods we live in, the restaurants we go to – are influenced by our social networks. Our financial and investment choices are no exception. Thousands of behavioural studies have shown that community members’ and peers’ savings and investment decisions tend to have a causal effect on individual decisions.
These effects are propagated through direct social interactions such as word of mouth or, as we highlighted in our last article, through online channels, including social media platforms like TikTok and Instagram. Be it online or offline, social pressures such as the implicit desire for conformity, acceptability, and social identity can powerfully affect investment decision-making.
Trust Matters For Young People
It is not surprising that ICMR’s survey of millennials and Gen Z found that most respondents prefer online sources for information about investment products. Nonetheless, the people closest to them in real life still play a role in shaping their financial decisions. Indeed, friends and family ranked as the second most popular source of information in ICMR’s survey.
During qualitative interviews with the respondents, one aspect that frequently came up was the importance of trust to millennials and Gen Zs. Most seek out financial advice from family and friends that they personally trust. Financially literate investors may add on their own online research, but those with lower financial literacy tended to immediately heed advice from friends they trust.
Moreover, previous studies have shown that millennials and Gen Z tend to lack trust in traditional institutions like news media and business, political, or religious leaders. Thus, it makes sense why they might turn to the people around them instead for financial or investment advice, regardless of whether their advice is actually good or bad.
“I definitely need to talk to friends before I invest, especially if they’ve also invested in the same thing. Recently, a friend told me he had cashed out his unit trust investments after making 15% gains. I will invest in that same unit trust once I have a bit more money.”– Zaim, 34, Lalamove driver
Relatability Is A Key Driver Of Trust
The rise of social media influencers over the past decade has reshaped how younger generations form opinions, buy from brands, and get their questions answered. Financial and investment companies have leveraged the popularity of influencers through collaborations, sponsorships, and paid-for advertisements to promote their investment products and services.
Nonetheless, ICMR notes that when it comes to personal finance, some respondents preferred talking to their peers as they found many personal finance influencers unrelatable. This was due to the perception that most personal finance influencers had financial goals that seemed unattainable, which ended up being demotivating.
Relatability is thus a critical trust driver for millennials and Gen Z investors. The notion of relatability goes deeper than relevancy by tapping into fundamental human truths: the need for belonging, to feel seen and valued, and to be accepted by a social group. In the end, people are highly social beings that are influenced by social norms and social identity when making key financial decisions.
“I stopped following influencers because they had goals like save RM100,000 before 30. I knew my savings was nowhere near there and it just demotivated me even more.” – Calvin, 29, performance marketing manager
More Talk About Money
While many old-school cultural taboos have been broken or at least softened, the stigma surrounding money talk is still prevalent today. For older generations, finances are often perceived as the final conversational frontier among friends and family members. However, ICMR found that millennials and Gen Z want to break this taboo and discuss money matters more openly.
Many of our interviewees felt that conversations among friends about money should be normalised, and that it can help each other navigate financial decisions. This is in line with other global studies, which found that millennials and Gen Z are a lot more transparent with peers about their money compared to previous generations.
Being more open and transparent about money might be the result of younger generations being less filtered about other aspects of their lives as well on social media. Yet even among close friends, it can be uncomfortable for young people to bring up topics like salary or earnings (not to mention financial hardships), especially if they were taught never to ask someone how much they make.
“I think we should normalise talking about our finances with friends. I’ve learned so much from talking with my friends. That’s how I first learned about StashAway and Luno. But I think I’ll only be comfortable talking with friends of similar income levels. It might get awkward if the other party makes a lot more or a lot less.”– Sofia, 29, engineer
Promoting Financial Security And Independence
Understanding how social preferences can influence individual decision-making has wider societal implications. Herding behaviour, or when investors behave like their peers instead of using their own information or making independent decisions, can lead to individuals being involved in scams, being misled, or creating investment bubbles.
Young investors must learn to seek advice from various sources to gain the knowledge and confidence they need to make sound investment decisions that promote their financial security and independence. Establishing open and transparent communication about personal finances can empower the next generation to achieve their financial goals and enhance their well-being.
This article is part of a content series by the Institute for Capital Market Research (ICMR). Follow ICMR’s Facebook page to stay updated on behavioral tips and insights for better investing habits. To learn more about ICMR’s research on millennials and Gen Z, visit www.icmr.my or download the full report.
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