TikTok shows Gen Z how to buy bitcoin and crypto. But they need other investing advice too.

On today's episode of 5 Things: Gen Zers and millennials endured two “once-in-a-lifetime” recessions during their prime earning years. That’s caused a lot of financial pain, especially for people of color, women, LGBTQ people and other populations that disproportionately face wealth gaps and financial insecurity. 

Young people are turning to cryptocurrency like bitcoin and ethereum because they can be an opportunity to make more cash quickly. They're also learning about stocks on social media.

How are young people navigating these new investment choices? What should they keep in mind and steer clear of?

USA TODAY personal finance and markets reporter Jessica Menton joins host Claire Thornton to discuss what social and economic factors are influencing young investors during the U.S.’s current financial rebound.

Hit play on the player above to hear the podcast and follow along with the transcript below. This transcript was automatically generated, and then edited for clarity in its current form. There may be some differences between the audio and the text.

Claire Thornton

Hey there, I'm Claire Thornton, and this is 5 Things. It's Sunday, September 26th. These Sunday episodes are special. We're bringing you more from in-depth stories you may have already heard.

Gen Zers and Millennials have endured two once-in-a-lifetime recessions during their prime-earning years or at the start of their careers. That's been really tough financially, especially for people of color, women, LGBTQ people and other populations that disproportionately face wealth gaps and financial insecurity. Young people are turning to cryptocurrencies and other less traditional investments because they can be an opportunity to make more cash quickly. They're also just a much newer phenomena and some people think that means cryptos are better for them, but the risks can be enormous. TikTok, Instagram, Reddit and other social platforms are where a majority of Gen Zers seek financial advice. How are young people navigating these new investment choices? What should they keep in mind and steer clear of?

I'm here with Jessica Menton, our Personal Finance and Markets Reporter. Jessica, your team just finished up an amazing six-week series looking at young investors. Let's dive in. Let's begin with Hector Martinez in San Francisco. He was featured in one of your stories. Let's start there. What did Hector tell you about how the 2008 recession affected his family financially?

Jessica Menton

That recession obviously is something that has left a lot of scars financially and emotionally for so many millions of Americans. And in the midst of what had happened in the pandemic and the recession last year, even though we're in the midst of a recovery now, people obviously are still picking up the pieces from what happened over a decade ago, and especially for younger Americans like Hector who is in his late 20s. Those are during his prime-earning years, and he's not alone with that.

So at USA Today, for the money team, we were examining the aspirations and anxieties of young Americans in particular, as some of them, say, either turn to social media for investment advice despite potential schemes, but then also when a lot of these younger investors are looking at some of these FOMO, fear of missing out, corners of the market, if we're looking at cryptocurrencies or SPACs, NFTs, the mean stocks, like the GameStop-

Claire Thornton

Dogecoin.

Jessica Menton

Right. And it's been such a big thing, especially after we saw the market crash last spring and then such a quick rebound into towards the late end of last summer. That was the shortest bear market on record and the quickest recession we've ever had, but still even that in the midst of the pandemic, obviously a lot of people probably don't feel that way. A lot of people feel like, oh no, they missed out on this rebound. So I worked on this particular story with Charisse Jones, who's our Economic Opportunity Reporter at USA Today, and when she spoke with Hector, he really talked about how he learned about cryptocurrencies.

So Hector Martinez is the son of immigrants from El Salvador and because his parents were immigrants, he quickly saw the appeal when it came to, say, cryptocurrencies because his family was part of a marginalized community and he felt like in that particular instance they could finally build wealth outside of institutions that often he felt excluded or exploited them. And there's other people from other groups that we had spoken with for this story as well, whether that were black Americans or people that were part of the LGBTQ community. They all agreed in a large part that a large number of institutions, they just didn't feel welcomed by those kind of traditional corners of the market. And when it came to cryptocurrencies, they felt like it created more fairness for them, and that's how he started getting invested into it. He said, when he was talking to Charisse Jones about it, that he had invested at least half of his portfolio in Bitcoin, as well as other digital currencies.

Right now he's living in San Francisco, but he still has those sobering memories of how hard the 2008 financial economic downturn really affected his family when it came to loss of wages, especially loss of jobs when it came to what was happening during that, and all of that... Just part of that family experience and trying to come back from that and how hard that was, and especially when that was stemmed from an economic crisis when it came to financial systems and the government deciding to support these large institutions, he felt that they were supporting them and not as much as the everyday person in his opinion. He was arguing that and how he felt like the system wasn't exactly created for him.

So fast forwarding to what had happened now, when you're looking at the pandemic and then you're seeing what's happened with cryptocurrencies, obviously some of these coins, say, like Bitcoin has been around for over a decade, still hard for it to become as mainstream as far as using it in everyday life and going into, say, a grocery store and things like that and using it. But he felt like, and a lot of other Americans from marginalized communities felt like, it just provided a more accessible financial system for them.

Claire Thornton

Yeah, because it's new. It's not something that has those historic systemic problems baked in maybe as much as the stock market.

So you really get at some big underlying issues in this young investor series, we're talking about student debt, two once-in-a-lifetime "recessions" and the wage gap. These things mean the cards are stacked against people of color, younger Americans, women. And you wrote about how social discrimination means that LGBTQ people faced more financial insecurity. What did your sources tell you about how these underlying factors influence their investment decisions?

Jessica Menton

When I was speaking to financial professionals and a lot of different professors across the country that have studied these sorts of trends, they really were talking a lot about how marginalized communities tend to worry that they'll lose money because they've experienced particular biases and unfair treatment. But for groups that have experienced discrimination, currencies that are freely exchanged and not backed by a single government appear to them to seem like they're more equitable when we're talking about cryptocurrencies. And because there are price swings when we're looking at cryptos, they're based on supply and demand, they can be extremely new volatile, which puts the value of them at constant risk. But some investors from marginalized communities still see them as a chance to finally get in on the financial boom at the front end that they felt like they've missed out on a lot.

We did work with Harris Poll that pulled exclusive data for USA Today, and among black Americans, 43% said that the banking and loans industry had treated them unfairly and about 39% of the LGBTQ community felt the same way. That was really a contrast when you looked at the general public, which was 28%. So it really shows how when even say, thinking back at financial red lining throughout history and how that hurt particular communities of color as far as trying to own homes-

Claire Thornton

Trying to build wealth.

Jessica Menton

... build wealth over decades and how those have had detrimental effects, even though there's certain systems in place now that have tried to prevent that from happening, just how long it takes for people to get out of that situation. And some people that, because of building wealth and money being transferred down from generations to other families, a lot of marginalized communities don't have those opportunities to have that. There is no wealth there to transfer down to. That's, again, why a lot of people in these different communities have felt that some of these other areas might be more beneficial to them.

But on the flip side of it, they do come with a lot of risk when you're thinking about these speculative investments. It doesn't mean that it's bad to invest in some of these things, but a lot of young investors who are doing this for the first time, there's a checklist, if you will, you almost need to as far as what you should do with your personal finances before you try to get in on something like that. And especially when it comes to something so volatile.

Just anecdotally, I had been speaking to some Americans, especially after the GameStop frenzy short squeeze earlier this year that rejuvenated a lot of interest into retail trading among young investors... And some people were foregoing taking part in their company-sponsored 401(k) plans because they thought that they could make more money trading stocks on different brokerage apps, which unfortunately, a lot of them were throwing away free money that their employers were offering them.

One woman in particular had a 3% match. She was a teacher and she decided not to do it because she wanted to instead trade stocks on Robinhood because she was watching different videos on YouTube and some other platforms where different influencers were talking about it. But that's another thing we can get into later about some of the risks there that come with social media and watching out for that type of information and trying to get advice from licensed professionals. But again, there's a lot of things coming out, people. Especially in the pandemic as people are stuck at home, maybe you've been fortunate enough you haven't lost your job but you have extra income and now you're trying to figure out, "Okay, I'm taking part of this retirement plan. How do I open up a brokerage account?"

But then you have other people who feel like they've been decimated in the pandemic. They lost their job, they lost income and they feel, again, that pressure to catch up, like you were referring to, especially younger investors who are facing the second recession in their early prime years and now they're trying to figure out if... Especially if they're still straddled with certain types of debt, whether it's student debt, credit card debt, maybe also still trying to either get a mortgage if they've been lucky enough to do that or trying to pay that off. There's a lot of things that they're dealing with.

I mean, there are, to be sure, a lot of opportunities that come with the technology that is in place now where a lot of older generations didn't have that ability to be able to trade stocks so freely and a lot of these brokerage apps that do exist, so there are those opportunities that are there. But at the same time when I've talked to financial professionals, they'll also point out even though a lot of prior generations have also gone through their recessions and ups and downs, these were two very difficult recessions for these particular generations to have to go through so much earlier on.

Claire Thornton

And those recessions were very different. Totally.

So let's get into crypto. Personally, I don't even have a super clear understanding of what cryptocurrencies are. I know that there's online mining involved. Where can one even buy and trade cryptocurrencies? How does buying crypto work for these people?

It's a great question and it does seem very complex, especially when this is something that's constantly trending on social media and so many people want to get involved in this. But cryptocurrencies are created and traded over a decentralized computer network and obviously have a popular appeal to younger investors. A lot of them can even go on to Robinhood-

Claire Thornton

Yeah, I learned that.

Jessica Menton

... and then there's also, say, bigger exchange platforms like Coinbase, where you can do it. But it is challenging, say, if you're younger than 18. Typically, you're not able to trade cryptos just yet so anecdotally, in some stories that we did cover, there were some Gen Zs who hadn't graduated from high school yet that were trying to trade cryptos but they ended up having their parents opening some accounts for them to try to help them trade those. So that was interesting. But they were very eager to try to start doing that once they did turn 18. But it's much more accessible now to try to trade those.

But also when you think of some of these coins like Bitcoin, at one instance earlier in the spring, it had hit a record over 64,000, but you don't necessarily have to buy that. You can buy a fraction of a coin so it's not like as if you'd have to pay that much money to do it. But there's different ways you can get involved and by fractions of these coins. There's also so many different ones. Bitcoin is the world's most popular coin, it's been around the longest and it's sort of thought of as more of a store value, similar to how people sometimes view gold as a safe haven during times of uncertainty. But then you also have other coins like Ethereum, which is the second largest coin market cap behind Bitcoin, but it's a little bit different with the technology that's used behind it and the blockchain technology. And some other areas like NFTs also use some parts of that.

But then a big thing was the Dogecoin earlier this year. That was actually created as a joke back in about 2013 and it did see some strong gains in certain boom and bust cycles. We did see it take off a lot earlier in the spring as well. But again, when I've talked to professionals, they really still see that as a joke and aren't taking it seriously. So although there are some people, particularly young investors who may have made a lot of money trying to trade that, they also were trying to time the market and not everybody is going to be right 100% of the time. Even the most successful investors in the world don't always get it right.

So when I think people, especially young investors, see their buddies making thousands of dollars in a day they obviously want to jump in on that bandwagon and do it. But a lot of people unfortunately got burned trying to do that, whether that was with the meme stocks or the cryptos this year or the NFTs, and then unfortunately lost a lot of money. So you do have to be careful and really think of these things more in a longer term, especially cryptocurrencies.

Fund Strat is a research advisor that a lot of financial institutions follow, and one of their managing partners that runs it, Thomas Lee, he was one of the few people that called the market bottom last year. So a lot of people do follow him. But as far as his firm, they really follow Bitcoin and Ethereum. But for the longer term, it's more of sort of a decade long play as society and technology keep up with it. So they try to caution people not to really try to time this because those things can see such volatile swings and a lot of people, especially if you're early on and you just have a little bit of money to invest, you might not be able to stomach those types of losses. But again, maybe put in some money but hold that for a long time. It's sort of similar to that buy and hold strategy that people try to use with retirement accounts over time. There's a lot of this phenomenon of trying to buy the dip that has worked out for some people over the past decade, as far as... Kind of similar to what we've seen recently on some down days where a lot of retail investors will jump in when things drop. But again, even currently stocks are still pricey because we are close to records still.

We've seen stocks on the up and up since the crash last March, and so even though we do see those days where people jump in on those dips to try to get it... Essentially if you're a younger investor, when stocks fall, and at some point when we do see a bigger correction, say, if there's a 5% decline from records for the S&P and some of the other major indexes, or 10% or even more, that's not necessarily a bad thing. Because when you think of people who sat on the sidelines last year, especially younger investors who were scared when the markets were falling, that's essentially a time for young investors to get in on that because you're essentially buying those shares at cheaper prices. And that's a good thing for you, especially when you have such a long time horizon and would hopefully be investing for a number of decades to set yourself up for your golden years. So I think those are some key things for people to keep in mind.

And when we're thinking about some of these speculative areas like the cryptocurrencies and how to buy them, maybe people, at least when I'm talking to financial professionals, they're really looking as far as just knowing your why you're trying to get into it, have a specific time horizon for yourself so that you can stomach that volatility. But then also considering holding it for the longer term just as society can catch up and it eventually potentially has more uses, as we had mentioned earlier, as far as some of these cryptos. Even though some of them seem to be a bit more mainstream, they're not used quite as frequently obviously as other bigger currencies like if you're trying to use it in everyday life. It just hasn't gotten to that point yet so it's going to take some time.

Some people have their different arguments when you're talking to financial professionals of whether or not that they think it's something that people should invest in. But if it's something that someone is thinking about doing it, really do your research and don't try to just time it. There can be a lot of danger with that.

Claire Thornton

Yeah, like set it and forget it. So more young people are really jumping into investing with Millennials and Gen Z, specifically with crypto at higher rates, and you've reported on how new surveys are showing us just how many Americans rely on social media for financial and investing advice, TikTok, Instagram, Reddit, Facebook. How does that break down across generations? What do you see when you look at these studies?

Jessica Menton

We worked with Credit Karma to pull data for us, and about 56% of Gen Zers and Millennials say they intentionally seek out information or advice through social media. The majority of Gen Z seeks this information on Instagram, about 57%, and TikTok, 52%. Millennials mainly seek out this kind of information and advice on Facebook. It was a little over 50% for them. And then when it came to Instagram for Millennials, it was close to 40%. And although this sort of new found power on their smartphone seems very exciting, it does come with risks as well, as we were talking about earlier, because financial regulators... We also spoke with FINRA, the Financial Industry Regulatory Authority, which is a brokerage watchdog for Wall Street. They worry that this year's viral trading craze of the meme stocks and the cryptos has fueled potentially unrealistic expectations, especially for first-time investors who face the possibility of losing money because of the spread of misinformation and fraudsters that are on a lot of these social media platforms.

That doesn't mean that there isn't helpful financial advice on social media. I think there's a lot more tools at people's disposal now than, say, during the prior recession and during the housing crisis. But at the same time that also leaves room for fraudsters to potentially try to take advantage of people. Or there could be people who feel like they are helping but they're not actually registered financial professionals and they might not be giving you the right information and they might not be realizing they're not giving you the right information, if you know what I mean. They might be doing their own research, but because they don't do this for a living they might not be realizing that they're leaving some crucial information out. When you think about a tweet or TikTok video, it's very hard to distill financial information in 120 or 140 characters, or just a minute-video, or maybe a three-minute video, because everybody has their own financial situation and where they are at certain points in their life.

If, say, you're Gen Z, you're just coming out of high school, maybe you just graduated from college, you're in a different financial place than, say, an elder Millennial who's maybe in their early 40s now, who probably is building their family, has children, but maybe they're also taking care of their parents at the same time and maybe they've gotten past some of the debt hurdles potentially with student loans and other types of debt. Whereas maybe if you're just coming out of college, you're facing that now. So it's like your financial plan isn't necessarily going to be the same as them. And then obviously it's different for those Gen Xers and Boomers. So it's hard when you're seeing certain videos and certain tweets out there or other things that are on social platforms to where it might not necessarily work for everyone. It's not always going to be apples to apples.

So you have maybe potential people who might not realize they're not giving you everything, all the information firsthand, but then there's also investment fraud criminals who could use an array of sophisticated and highly effective tactics to try to target and influence perspective victims. There have been some instances where they've tried to do that by manipulating certain stock prices to benefit themselves, and that's something that FINRA had found in different research and studies that they had done. So to really avoid trying to be drawn into a scam like that you should look for warning signs of that type of investment fraud and really be suspicious of anyone who tries to guarantee a particular investment would perform a particular way just because every investment is going to have some sort of risk. We don't all have a crystal ball and just know what exactly is going to happen in the market and in the financial world, so it would be skeptical to, especially if they're unlicensed individuals that are trying to sell you on something like this and they're unregistered securities, you should really be skeptical about that. Be sure to deal with licensed professionals.

Also, if you're getting this type of investment advice online, sometimes it can be really helpful. It might not just be about investing advice, but it could be about trying to pay down debt or maybe trying to figure out how do you go about getting a mortgage. There's so much under the umbrella of personal finance that people are really hungry for right now. But if you have the opportunity to try to go to a financial professional, I know sometimes that can be difficult, especially for younger investors who might feel like they don't have the money to do that, but sometimes there might be opportunities through particular employers that you should check with to see what programs they may offer through that to see if you have the ability to work with someone to try to help you set up your financial goals, as well as investment opportunities. So those were some key things that I took away working on some of these social media stories.

Claire Thornton

Great. Besides the social media stories, are there any other big takeaways from this young investor series that you want people to walk away with?

Jessica Menton

There are. One of the first big stories that we did a part of this was about how younger investors were quitting their jobs to day trade, and not all of them were originally younger investors. They were average Americans who, say, were working in the hospitality industry or other corners of the job market that obviously were very hard hit during the recession and lost income and then they started trading last year and began to see the opportunities with it. But then once the economy started opening back up, they went back to work but they weren't making as much money as they had been prior to that just because of the way that COVID and the travel restrictions and some of the dining restrictions had played out.

A lot of them that I spoke with, one gentleman in particular who was from Albania, but he and his wife live in New Jersey now and he was working in New York city at a restaurant, he just kept thinking to himself, "Oh my goodness I was making so much more money when I was at home trading." And his wife actually has a 401(k) retirement program through her employer. She works as a licensed professional when it came to apartment listings and trying to get people their apartments in New York City. But for him, he felt like he wanted to take the risk and end up quitting his job and decided to just day trade full-time and felt like if he wanted to go back and work in the hospitality industry, he would do that.

That mirrored a lot of other conversations we had and what we were seeing with other people. But again, that does come with a lot of risks. He doesn't have a retirement plan, so even though his wife might have one he wasn't necessarily putting money away in that regard for the longer term. They were budgeting a lot. But again, when it comes to day trading, when you think of financial professionals that are working at these really large banks and these firms, they all have to take those exams, they have to take those licenses that they have to have in order to trade these types of securities. If you're an average day trader, you don't have to do any of that. And so then when we did more of these stories, we started to really realize more of just the financial literacy issues in general in the U.S. and the lack of personal finance or literacy, even investing courses that are provided, in a number of states throughout the U.S.

One of the stories, it was a little over, I think, 20 states at this point, requires some sort of literacy course. I mean, that's less than half in the U.S. And even in those states, when I'm talking to people who took those courses, they were more maybe personal finance focused, about budgeting, not necessarily investing. And then some of them also maybe even took them if they were able to go to college and did them, but they still felt like they didn't learn enough as far as trying to invest and save for retirement now.

So there does seem to be this sort of longstanding divide there as far as how we're educating people moving forward in the real early years, as far as whether that's in high school but then also in college. And some states are mandating some of these courses. But even then, it looks like when I'm talking to you, a lot of professors who work in finance they just feel like there needs to be additional courses and maybe even tweaking some of this coursework because when people are graduating and going off into the real world many of them don't feel like they have the tools, educationally, to figure out how they're supposed to manage their finances for the rest of their lives. And it's a dangerous thing because money is something you will deal with forever. It's not going to go away. Everyone has to deal with it. So you would think that there would be more requirements for something like that.

For instance, when I'm talking about some of the high school courses... I mean, I, for instance, I had to take economics in high school. And when I'm talking to a lot of my friends who took similar courses like that, they always say that it felt very macro focused, say supply and demand, which is important to know about, but a lot of people I speak with, I think, struggled to figure out how do I use this in my everyday life if I'm just trying to manage my money, or if I'm trying to open up a brokerage account, or if I'm trying to figure out how do I put money away for retirement, or how do I pay off student loans, or how do I get a mortgage? They just do not feel like they have all the information they need.

I think that was one of the biggest takeaways from doing this survey is trying to see how can we really give people the information that they need, especially younger people that are coming out into the workforce right now, who are struggling potentially to even get a job? Even though the economy has improved, it's still been difficult for those graduates over the last year and this past summer as far as trying to go into the workforce. But then also preparing people for their futures as they go through different stages of life, as they're paying off certain debt and then trying to build families, get their dream home, save for their golden years. There's so many questions that a lot of people have. And that was one of the biggest takeaways as far as, how do we resolve some of these financial literacy issues in the U.S.?

Claire Thornton

Yeah. Well, I know you've just published a story on that, like what classes we should start requiring more of.

Jessica Menton

Right, and that was a big thing as far as doing a deep dive into that. And then also working with FINRA to see just in general... They do a number of quizzes, and we actually had a quiz that we worked with FINRA too that's on the USA Today website that's a part of these stories that people can take that have those sorts of basic investing and personal finance questions. And then, I mean, not surprisingly, most, and particular young investors were getting them wrong. And even when it came to quizzes of, say, when we're talking about the Game Stop crypto frenzies, when traders are trading on margin, which carries a lot of risk, or options trading, a lot of investors were getting these questions wrong, which could be dangerous, especially if you're putting more money than you're willing to lose into something like that. You have to be really careful.

I think all of this really shows how I think in the U.S., and just globally in general, it seems like there's still a lot of work there to do when it comes to resolving this longstanding divide with financial literacy.

Claire Thornton

Yeah. Well, we can leave it at that. Jessica, thank you so much for being here.

Jessica Menton

Thanks for having me and featuring our stories. I really appreciate it.

Claire Thornton

Yeah. Where can people find you on social media to get some advice from you on social?

Jessica Menton

Great question. On my Twitter account, it is @JessicaMenton. So that's where people can follow me, where I'll post my stories, and we'll be having more coming soon. So I'm excited for people to follow us, and especially people that are hungry for more financial information.

Claire Thornton

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That's all for now. Taylor Wilson will be back tomorrow morning with 5 Things you need to know for Monday. Thanks for listening. I'm Claire Thornton. I'll see you next Sunday. Until then you can keep up with me on Twitter where I'm @claire_thornto.