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Older generations have made their fair share of financial mistakes . Signing up for costly traditional policies on the advice of the friendly neighbourhood insurance agent, buying a dubious land parcel in some far-flung village for its long term payoff or simply putting away a chunk of life savings in high-yield deposits of some obscure co-operative bank. Most households will recount such sordid tales. Like any generation before them, millennials and Gen Z also remain vulnerable to money traps. Only, the temptations now come in different shapes.

The explosion of social media and lastmile internet connectivity has opened a Pandora’s box of possibilities for you to lose your shirt. Multiple apps are jostling for space on your smartphone, offering you an open tap of instant loans. Fintech platforms are intent on reshaping your investing habits by gamifying your experience. Shopping online now comes with enticing options for buying goodies without worrying about paying for the stuff. Your YouTube or Twitter feed today is bombarded with content put up by affable financial influencers serving you all manner of money advice. Online stock tipsters and day trading gurus run amok, promising quick riches from trading options. Some of these appear harmless and even rewarding but are silently leading your finances astray.In this week’s cover story, we lay bare the pitfalls of getting swept up in this mela of new-fangled baits and seductions.

The Instagram lifestyle

Gen Z views the world through the impressionable lens of social media. In the pursuit of likes and followers, many feel compelled to project a certain lifestyle via these platforms. Others try to ape their favourite influencers, which has fuelled materialist desires that are often at odds with income profiles. Harsh Roongta, Founder, Fee Only Investment Advisers, remarks, “On social media everyone seems to be leading glamorous lives, fanning aspirations for others.”People who have just started working want to live life to the fullest. To bridge this gap in cash flow, fintech apps have made available easy credit of small ticket-sizes. Credit card debt is passe. Gen Z is bingeing on payday or early salary loans. Borrowing on peer-to-peer lending platforms is catching on.

Easy loan apps attract those with no credit history
The relaxed eligibility requirements make it easier for first-time borrowers.
% of new-to-credit customers

‘Buy now, pay later’ schemes and its variants—‘travel now, pay later’ and even ‘marry now, pay later’—are also big draws. The appeal of these newer credit alternatives is clear. You get quick access to credit with diluted eligibility requirements. A few taps on the phone is all it takes to avail this facility. Experian India estimates that digital lending is likely to surpass traditional lending by 2030. For young adults, this provides an easy work-around for their temporary cash crunch. It allows them to meet their lifestyle expenses—a weekend getaway with friends, a birthday gift for a special someone or dinner at an upscale restaurant. The problem occurs when borrowers get addicted to this on-tap credit. When the first loan is paid off, it often sets off a cycle of borrowing increasingly higher amounts.

Gen Z and millennials are tapping into digital loans
Fintech platforms are a big draw among the younger generation.
% of customers aged 35 years or below

Santosh Joseph, Founder and CEO, Germinate Investor Services, observes, “Borrowing money has become super easy. Individuals start with smaller amounts initially and get sucked into a vortex of piling debt.” But the loans aren’t cheap. They come with usurious interest rates, often much higher than even a credit card. Some digital lending apps surreptitiously hide onerous repayment terms that demand you to pay up much earlier than initially promised. Sooner or later, the borrower falls into a debt trap. If one can’t repay the entire amount, one is asking for trouble. Heavy penalties are levied on top of the dues. Fintech lenders let loose an army of recovery agents if dues remain unpaid. There have been numerous reports of harassment involving shaming and blackmail. Prableen Bajpai, Founder, FinFix Research and Analytics, laments, “Our tendency to seek instant gratification is often used against us.”

BNPL loans are not just bite-sized
Three of 10 loans are for over Rs.20,000, which shows consumers are borrowing for high-value items.

The loan apps you install on your phone are often themselves potentially dangerous. With just one tap, you allow them access to everything on it—your contacts, images and videos. Armed with this access, the same apps can later be used by the lender to harass you into repaying dues. The stored data can also be misused in other ways. While the government has recently blocked several shady digital lending apps and issued operating guidelines for fintech lenders, it remains a hazardous arena. Users must exercise utmost caution.

Gamification of investing
Back in 2015, the Indian Trading League burst onto the scene—a competitive trading arena started by Samco Ventures that encouraged real-time trading with real money in a gaming environment. Many other players sprang up soon after. The regulator later banned such formats. But online fantasy stock gaming apps continue to flourish even today, offering the same experience in a virtual setting. These don’t deal with real money. Yet even stock trading leagues operating within virtual setups can foster risky trading behaviour in the real world, points out Suresh Sadagopan, Founder, Ladder 7 Financial Advisories. For instance, a winning streak in a controlled environment may lull a novice investor into a false sense of complacency trading with real money. Further, several platforms have introduced smart tools and features that have changed the way users engage with them.

These essentially stimulate investors by subtly gamifying trading activity. This takes different forms such as points, badges, leaderboards or cash vouchers. These may appear harmless, but they are clever nudges designed to influence your trading habits, contends Joseph. In its latest biennial Investor Trust Study, the CFA Institute surveyed more than 3,500 retail investors and found that a startling 92% of investors aged 25-34 years trust digital nudges. A whopping 75% of those in this age bracket also reported that the use of tools in apps increased their frequency of trading. Clearly, these nudges are inducing the desired effect. Users are being pulled back frequently to the trading screen. Needless to say, increased trading activity based on such triggers can hurt you in the long run.

Millennials are more likely to trust digital ‘nudges’
Younger users readily engage with different in-app tools and features.
% of respondents trusting digital nudges

Juzer Gabajiwala, Director, Ventura Securities, rues, “Eventually, investors drop out completely if they have a bad experience after trading aggressively.” To be sure, not all nudges are unhealthy. Some even encourage good money habits. Bengaluru-based investment app Fello offers gaming tokens for every rupee invested by a user. These tokens can be used to play in-house games and win prizes. The country’s leading brokerage firm Zerodha went against the herd and introduced nudges that warn users of risks associated with trading in a particular set of stocks—illiquid stocks, penny stocks, manipulated stocks, among others. It also introduced a ‘kill switch’—a feature that lets traders voluntarily lock themselves out of the trading app instantly, preventing them from executing trades for a set period. Discount broker Samco has introduced a new feature on its platform which lets users know the return they are earning versus the index, and take remedial measures if lagging. The intent is to show investors the reality of their investing outcomes and nudge them towards aiming to beat the index. It will even go as far as to suggest the chronic laggards stop active trading and instead invest with an index fund or professional fund manager.

Access to tools increases trading frequency
Higher engagement with apps spurs heightened activity, which can be harmful.
Respondents admitting increased trading activity

Yet, even positive nudges such as these may not work if they are not aligned with the investors’ risk profile and goals. For instance, it is entirely possible that some users may take actions detrimental to their long term interest by frequently glancing at their scorecard. One of the cardinal rules of investment is that the less you trade, the better you do.

Gamification gimmicks used by portals
Users are lured by the competitive spirit and rewards on offer

Cult of financial influencers
A new breed of celebrities have captivated viewers on social media in recent years. The immense pull of financial influencers among savers and investors is perhaps the biggest culture-shift amid the postpandemic era. Embraced by masses drowning in financial insecurities and riding on the wings given by social media platforms, these individuals have quickly achieved cult following by dishing out advice on matters related to money. According to the World Economic Forum, Gen Z is almost five times more likely to seek financial advice on social media than adults above 40 years. Roongta avers, “Earlier, the circle for financial advice was very small. Now, advice comes readily from every corner.” The problem is some of these so-called influencers are hawking dubious advice.

Sadagopan warns, “Many of these influencers pose as experts without having the requisite qualifications or experience in the areas they advise. Often, the advice tends to be incorrect and not in context.” They tap into the viewers’ proclivity for instant remedies and their incapacity to do their own research. M. Pattabiraman, Associate Professor at IIT Madras, observes on freefincal.com, “The biggest problem is, most readers or viewers are lazy. They want quick-fix solutions. They want to know which is the “best demat account” or the “best way to get better returns than a fixed deposit”. When such people meet influencer content it is a match made in hell.”

Viewers acting blindly on this advice may end up hurting their finances. Last year, several high-profile influencers had actively promoted the crypto platform Vauld, which later suspended operations and left investors in the lurch. These individuals had merrily hyped the safety and high return of the company’s ‘crypto fixed deposit’ offering. Many investors who lost their money to this offering admitted to having put faith in the advice of influencers. The problem is that people mistakenly equate social media views, likes and following with ability and expertise. Apart from a few exceptions, there is often little or no research behind these opinions.

Many such videos are sponsored content, where a product manufacturer pays huge sums to get the influencer to wax lyrical about its offering. Dev Ashish, Founder, StableInvestor, observes, “FinFluencers generally make money by getting eyeballs and monetizing the views of their digital profiles. Quite often, they promote sponsored content and push investment products via loose talk that has no regard for viewers’ suitability for the product.” Do not trust financial influencers blindly. Sure, there are a few who do come out with well-researched, useful nuggets of wisdom. But these are exceptions. You should be suspicious of any content that uses catchy clickbait phrases like “make 3x return” or “how to get rich before you turn 30”. It is always advisable to do your own research and not rely on the word of any influencer. Ashish exhorts, “The onus is on individuals themselves not to be influenced by what they hear or see online.”

More young traders are participating in F&O segment
Share of traders aged 20-30 years has more than tripled in the past three years.

Not easy to make profits in day trading
Most intra-day stock traders incur losses.

Online tipsters, day-trading stars and seminar hustlers
The social media influencers spewing financial advice have nothing on their enterprising cousins—online tipsters and day-trading tzars. Amid growing retail investor interest in futures and options trading, a number of individuals have established online personas as trading champions. These make a living peddling trading tips via Whatsapp or Telegram channels. Sadagopan remarks, “These individuals often suggest stocks where they already have positions and stand to reap benefits at the expense of their trading clients.” Just to prove their credentials, they often post (mostly fake) P&L screenshots online showing fat trading profits.

Some even post snaps of their lavish lifestyle, ostensibly funded by their trading exploits. However, this is usually a smokescreen to tempt people into signing up for paid recommendations or enlisting for their expensive options workshops. One such social media finfluencer Vikram Prabhu got exposed when he posted a supposed P&L screenshot of his F&O activity on Twitter. The subterfuge only came to light as his P&L showed the Bank Nifty quantity at 1,000, when the maximum limit for this basket is 900. His tweet even boasted how this trade alone had covered the cost of his Maldives trip. Last week, the NSE warned the public of a person named Pankaj Sonu associated with entity named “Trading Master” collecting funds from public for trading in securities market and providing assured returns on investment.

Four YouTube channels were found indulging in pump and dump
These channels spread fake and misleading information about two penny stocks, Sharpline Broadcast and Sadhna Broadcast .

He was also offering to handle the trading accounts of individuals by asking for their user ID and password! Sebi recently uncovered a ‘pump and dump’ scam in two penny stocks perpetrated by creating hype via YouTube channels along with social media influencers. Yet, unsuspecting investors keep falling for such baits hook, line and sinker. The endless greed and get-rich-quick aspirations of investors keeps drawing in many like moths to a flame. Bajpai cautions, “Indulging in ways to make quick money can be detrimental to one’s financial journey. There are no short cuts. If one feels that he or she has found one, there is a high chance that they will never reach their goals.”

Experts warn that F&O trading is much more complex than what these influencers will have you believe. Many of these options stars do not give their audience the full picture of the risks involved. Simply having the ability to interpret various patterns on charts will not give you an edge. It involves a longer learning curve. A recent Sebi study paper revealed that nine out of 10 individual retail traders are incurring losses in the F&O segment. So don’t get carried away by the lavish lifestyles or success stories of so-called trading gurus. Gabajiwala asserts, “Remember that social media only amplifies success stories and hides failures.” Avoid workshops that promise to turn you into a trading whiz kid in two days. Enrol for training only with reputed institutions, be realistic in your expectations and understand your risk tolerance limits before dabbling in this space.

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