Consumer fraud affects people of all ages, but it can have especially devastating consequences for older individuals.
Many experts believe that senior Americans are more likely to be targeted as fraud victims than younger ones. That’s because con men (and women) go where the money is — and in today’s “age of longevity,” the money is with the older population, which has more money to lose and less time to recover from fraud.
At the Financial Fraud Research Center, located at the Stanford Center on Longevity, we have just released a report called “Scams, Schemes and Swindles: A Review of Consumer Financial Fraud Research.” It shines a light on what we know (and don’t know) about the prevalence of consumer fraud and its victims, perpetrators and methods.
Here are six of our major conclusions:
1. Fraud is rising at an alarming rate. Measuring the rate of fraud precisely is difficult for a variety of reasons, including its inherent secrecy and the number of people who fail to report being victimized. But according to the Federal Trade Commission’s Consumer Sentinel program, there was a 60 percent increase in reported cases of fraud between 2008 and 2011. Tens of millions of adults fall victim each year, losing billions of dollars.
The figures for elder financial fraud are especially frightening. The Investor Protection Trust, a nonprofit devoted to investor education, estimates that 7.3 million older Americans have been victimized by a financial swindle (that’s 20 percent of the 65-and-older population). And MetLife estimates that exploited seniors lose roughly $2.9 billion annually.
2. Fraud’s cost is far more than just monetary. Consumer fraud is one of the few crimes in which the victims may be made to feel complicit. The act of deception and betrayal inherent to these schemes — particularly those that exploit social and religious ties — can inflict severe psychological consequences. Preliminary research suggests that fraud has the potential to induce substantial, broad and long-lasting psychological costs.
3. There is no “typical” fraud victim. That said, studies analyzing scam victims have yielded a clearer picture of who is most likely to be targeted and tricked.
The average victim of a fraudulent investment scam is an optimistic, married man in his late 50s who has a higher-than-average knowledge of financial matters and a deep confidence in his own judgment. He is also more likely than the general population to be open to listening to sales pitches and to have experienced a recent health or financial setback.
The average lottery scam victim is more likely to be female, older, single, lower-income and less educated than the general public.
Although different types of individuals are more vulnerable to various versions of fraud, it’s likely that everyone is vulnerable on some level.
4. Watch out for the two most likely scammers. Since fraud perpetrators are largely hidden from view, most of what we know about them is anecdotal or gathered from interviews with convicted con men. But the information we have conforms to two broad stereotypes: young or middle-aged, middle-class white men.
5. Fraudsters like to use six common tactics. You’ve undoubtedly heard the expression, “if it looks too good to be true, it probably is.” The problem is drawing the line between “good” and “too good.”
Skilled fraudsters know how to make a scam look “just good enough” so it seems true. They mimic the persuasive strategies, communication avenues and payment mechanisms of legitimate commerce, often making it extremely difficult to identify the fraud before it’s too late.
These are the techniques crooks generally employ to hook you:
- Profiling The con man asks you many questions to learn your emotional hot buttons.
- Phantom Riches He dangles the prospect of exorbitant wealth, so desire overwhelms your reasoning skills.
- Source Credibility He pretends to have famous customers or to be affiliated with legitimate organizations.
- Social Consensus He tells you about all the other customers he supposedly has, so you’ll assume the deal he’s pitching is legitimate.
- Reciprocity He feigns generosity so you’ll feel obligated to buy something from him.
- Scarcity He stresses that the opportunity is only available for a short time, so you need to buy now or lose your chance.
6. Fraudsters get more innovative by the day. They play off topics that are relevant to the economy and, these days, make increasing use of technology and the Internet when contacting victims and obtaining their money.
Although telemarketing has long been associated with consumer fraud, email and websites now comprise the most common way crooks interact with their victims. Older Americans are particularly at risk from Internet scams because they represent the fastest-growing section of Internet users but may not be aware of the security risks online.
In addition to classic scams, like investment schemes (Ponzi and oil and gas lures), opportunity scams (foreign lotteries, phony travel deals and bogus inheritances) and fear schemes (someone posing as a grandchild in trouble) brings a host of innovative scams each year.
Some of the relatively new schemes that pose significant threats to consumers are: Phishing attacks (spam emails that lure you into revealing personal information), malware (malicious software that you unknowingly download to your computer) and skimming (using handheld devices to collect credit card information).
The growth of social networking sites will almost certainly be mirrored by an increase in social networking scams. Be vigilant.
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