You Too Could Become a Victim of an Elder Financial Scam

By Mary West

Financial scams are rampant and have many forms, making it especially hard to avoid them. In a 2012 survey titled Financial Fraud and Fraud Susceptibility in the United States by the FINRA Investor Education Foundation, 80 percent of the respondents reported that they had been solicited by a person making a fraudulent offer. Once solicited, older adults were 34 percent more prone to victimization than younger adults in their forties. The losses can be devastating: according to a 2014 study by Allianz Life, on average, victims of elder financial abuse lose $36,000.

Remember the old adage, "If something
sounds too good to be true, it probably is."

Seniors’ heightened vulnerability to fraud is due to an array of causes. Two factors that play a prominent role are the tactics used by scammers along with the inability of older adults to recognize red flags that indicate an offer isn’t legitimate. Since at one time or another you’re likely to encounter one of these schemes, and being familiar with the dirty tricks of the trade can help protect you from losing your money to a fraudster.

Scammers Use Tactics that Incite Strong Emotions

When scammers make their pitches, they say things that generate strong emotions. The older people are, the greater the likelihood that these emotion reactions will lead to their victimization. A study conducted by the Stanford Center on Longevity (SCL) compared the effects of strong emotions in adults between 65 and 85 years old, to those between 30 and 40 years old. The participants underwent tests that elicited strong positive emotions such as excitement, strong negative emotions such as anger, and neutral emotions such as boredom or depression. Each participant was place in a situation intended to provoke, one by one, these three emotions and after each one, presented with fraudulent ads to ascertain their interest.

The results showed that the older adults whose reacting was excitement or anger were more likely to purchase the item promoted in the misleading ads than those experiencing neutral emotions. Conversely, younger adults who felt excitement or anger weren’t more likely to have an interest in the fraudulent offers than those with neutral emotions. Regardless of their feelings, unlike the older participants, the younger adults’ interest depended upon how they perceived the ads’ credibility: the more credible they rated the offers, the more likely they wanted to purchase the products advertised. In a study done by UCLA in 2012, it was discovered that the area of the brain which warns us that something is not quite right, begins to diminish as early as our mid-forties. Additionally, we begin to lose our ability to absorb information, simultaneously analyzing it based on multiple logical criteria (so called “Fluid Intelligence”), and reach a well-considered decision. This makes financial decision-making problematic.

Authors of the SCL study concluded that the elderly are more susceptible to scams that generate emotions like excitement or anger. It was clear that “high-arousal” emotions such as excitement lead to risky decision-making compared to “low-arousal” emotions such as boredom. Strangely, even when older adults suspected that an add was misleading, their frustration or excitement would never-the-less cause them to want to purchase the fraudulent products. Unsurprisingly, an appeal to these feelings is a major persuasion tactic used by scammers who target the elderly.

The authors recommended sharing the findings with older adults so they can recognize the tactics used by scammers. Fraudsters tend to create excitement about an offer by the following means:

• They make promises of inflated financial gains.
• They pressure targets to make a decision quickly.
• They falsely claim that trusted sources are a part of the endeavor.

It’s always best to postpone any decision until the company’s background can be researched to verify its legitimacy.

Be Alert to Red Flags of Guaranteed or Unrealistic Gains

In the survey on fraud susceptibility, a main takeaway was that many Americans are unable to identify red flags associated with scams, especially older Americans and older women make up a larger proportion of those... They aren’t knowledgeable about what constitutes reasonable returns on investments, which makes them prone to believe fraudulent pitches with promises of “guaranteed” or inflated gains. In reality, all investments carry some risk, but mentions of unrealistic returns are a commonly used means of ensnaring the scam prey.

When the survey presented the respondents with two pitches that were full of red flags, a significant percentage of the participants found the fraudulent claims appealing rather than suspicious. Below are some examples of statements that 48 to 59 percent of the respondents rated appealing:

• “It guarantees the safety of the invested amount and even pays a 5% referral commission.”
• “The program pays from 2% to 3.4% daily depending on the investment plan you choose.”
• “We guarantee you will not lose your principle investment with our company.”

Further questions to gauge the participants’ ability to identify red flags showed the following promises were the most appealing:

• “This stock has outperformed the Dow Jones Industrial Average each year for the last 5 years.”
• “The lowest return you could possibly get on this investment is 50% annually, but most investors have made upwards of 110% a year.”

You can see how the excitement generated by such claims might override an elderly person’s normal good judgement and induce him or her to take a risk. Widowed women in their late seventies and older are particularly susceptible because so often it was only their husbands who dealt with the family finances.

Elder Financial Scams are Vastly Underreported

The fraud susceptibility survey cited underreporting as a problem that prevents policy makers from having accurate data reflecting the scope of financial scams among the elderly. It estimated 60 percent of fraud cases are unreported because of various factors such as embarrassment or a belief that it won’t make a difference.

To get a true picture of the incidence of financial scams, the survey respondents were asked about their experiences in two ways. As in past studies, they were asked directly if they had been the victim of a fraud. They were also questioned indirectly by inquiring about their experiences with financial offers that are rife with fraud such as email scams, lottery scams, free lunch seminars, boiler room sales, penny stock sales, and pyramid schemes. This research method that involved both direct and indirect questioning yielded a fuller view of fraud susceptibility. The inescapable finding was that elder financial scams are more pervasive than earlier research indicates.

The bottom line is to avoid talking to strangers on the phone as well as to refrain from responding to unsolicited mail invitations or emails. Moreover, don’t give out personal information to a stranger or allow someone to rush you into a decision. Talk to your elderly parents about scammers. Put a pad and pencil next to their telephone and suggest that they jot down all the details and go over them with you or a trusted friend before making a purchase. Above all, remember the old adage, “If something sounds too good to be true, it probably is.”

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You Too Could Become a Victim of an Elder Financial Scam