Avoiding Common Financial Scams
Financial scams have been a common nuisance that require people to be diligent about cybersecurity, online manipulation, and protecting their money. Money lost from financial scams is increasing drastically year by year, and techniques used by scammers are becoming more sophisticated.
The Federal Trade Commission (FTC) reports that in in 2023, 27% of people who reported a fraud said they lost money, while in 2024, that number increased dramatically to 38%. Consumers reported losing more money to investment scams, around $5.7 billion, than any other category in 2024. Older generations are targeted most often by scammers and are most at risk from financial exploitation. The combination of rapidly changing technology and a desire to remain independent and not be a burden on their children can result in increased financial vulnerability.
FINRA’s Financial Intelligence Unit reports that, according to the 2023 FBI IC3 Elder Fraud Report, total losses reported by elderly victims increased 11% from 2022, with victims losing an average of $33,915.
Education is key to keeping investors safe, but there are also some easy common-sense approaches that can be used to protect your assets. At Arrow, we place many safeguards to help our clients protect their assets, including verifying identities for all transfers/withdrawals.
Why are older people more targeted by scammers?
Older adults are actively targeted by scammers for two reasons: they have access to money, including retirement funds and government benefits, and they may have a real or perceived lack of familiarity or comfort with technology. Sophisticated scammers don't just use technology – they are very practiced in exploiting the emotions and fears of their targets. Elderly adults experiencing loneliness and cognitive decline are of course at risk, but even fully capable adults can be exploited by playing on their emotions. Many people have the misconception that hackers directly steal money by getting access to their accounts. While this does happen, it’s much more likely that people are deliberately misled or exploited and willingly give up their money.
For example, a 93-year-old woman who lived alone, managed her home and her funds, and was still living an active, full life was convinced by a scammer to reveal her bank account information over the phone to sign up for an extended warranty on her car. The key emotional manipulation point: by buying this "policy" she would not be a burden on her children if something happened to her car. The woman fortunately told a younger neighbor what she had done, and the neighbor immediately recognized the scam, called the bank and alerted them to the potential fraud, and then accompanied the woman to her bank to close out the account and transfer the funds to a new account.
The consequences could have included extensive financial loss, as well as a compromised identity and damaged credit. The FINRA Foundation recently funded a study that found nearly two-thirds of fraud victims reported depression, anxiety, or other mental health issues after being scammed.
Common Financial Scams
FINRA tracks trending scams through its Securities Helpline for Seniors, and the FBI maintains historical data from its Elder Fraud Report. Imposter scams are extremely common, and the use of AI technology and voice cloning is making them more dangerous. They rely on either familiarity by impersonating a family member or introducing a personal relationship, or authority by impersonating a government or other business entity.
Examples include:
Impersonation Scams: Personal data about grandchildren or other family is gathered through social media, and this information is used to impersonate the victim’s relatives, including by using AI technology and voice cloning. Impersonation scams often result in stolen identities or pig butchering (see below).
Romance Scams: Reaching out through social media to befriend and gain trust and then presenting an investment scheme with the potential for high profits.
Pig Butchering Scams: The end goal of an impersonation or romance scam is often “pig butchering”. After the person has gained trust, they convince the victim to invest in something (usually cryptocurrency, but also fake websites made to look like real investment management firms). The scammers show fake statements with large gains (“fattening the pig”) and then convince the victim to invest more money. They continue the charade showing even more fake gains until the victim wants to pull their money out of the account. Then, there are more fees and taxes to withdraw the gains, and as time goes on they keep showing more gains and continue to request more money for “taxes”.
These gains are never real, and any money given to the scammers is gone. But once someone has shown a willingness to send money, they are continually targeted with more fees and taxes, all in a desperate attempt to get their money back.
Recovery Scams: Once the victim is aware they have been deceived from a pig butchering scam, they will often be targeted by a new scam called a “recovery scam”. The original scammers will impersonate firms that can recover the lost funds. Of course, this fake service has a fee, and then they trap the same victim all over again, with hidden fees and taxes, preying on the emotion of the victim, who are desperate to receive their money.
Federal Agency Imposter Scams: Scammers pretend to be representatives of Social Security, the IRS, or other government agencies to obtain information or even have funds wired by threatening large fees, cutting off benefits, or other consequences unless payment is made. Payments are usually demanded through wire transfers, cash, or prepaid debit cards. These scams often result in direct financial loss through fake payments.
Mortgage Wire Fraud/Foreclosure Scams: These scammers will impersonate escrow officers, real estate agents or even lenders. In this scheme, they attempt to get the prospective homeowner to wire funds into an illegitimate account during the closing process. Mortgage scammers may also attempt to hack legitimate email addresses or send the buyer phishing emails posing as someone involved in the real estate transaction. They will monitor pending public sales and when closing nears, send fraudulent instructions to wire the closing funds.
Homeowners in financial distress and near foreclosure are often a target for mortgage scammers. Predatory lending schemes use a variety of methods to make it look like they can help the owner keep their home, when reality they are impersonating people in the transaction. These scammers will often misrepresent themselves as government officials or attorneys and offer to negotiate the terms of a mortgage to avoid foreclosure.
How can you protect yourself from common financial scams?
Creating effective education means opening those pathways of communication so that vulnerable people understand what is at stake, and that protecting them does not mean limiting their independence and autonomy. It's a good rule of thumb to remind everyone to never give out any personal information over the phone, or to transfer money without verifying phone numbers and people/companies involved in the transaction.
Having discussions about how everyone is vulnerable to these scams – not just seniors – can help make it easier to create an environment where everyone feel comfortable reaching out to their family before they make emotional decisions that will impact their money.
Prepayment of fees and taxes are never required to move money in a legitimate financial transaction. If these are due, they will be taken out of the funds currently at the financial institution.
Never open emails from senders you don’t recognize. If you are unsure whether an email you received is legitimate, try contacting the sender directly via their website or phone number to verify. Do not click on any links in an email unless you are sure it is safe.
Be careful with links and new website addresses. Malicious website addresses may appear almost identical to legitimate sites. Scammers often use a slight variation in spelling or logo to appear legitimate. Scam links can also come from friends or family whose email or messenger has unknowingly been compromised.
Secure your personal information. Before providing any personal information, such as your date of birth, Social Security number, account numbers, and passwords, be sure the website is secure.
Use strong passwords and make them different across websites. Avoid personal identifying information like Social Security numbers and birthdays.
Only get involved with financial transactions with people you’ve met in person and/or were able to personally vet their company associations. Scammers often impersonate real people, so you need to know who you’re talking to. No legitimate businesses in the U.S. will conduct financial transactions and communication through What’s App or Signal, or other similar apps.