Why Some Put Their Savings at Risk

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Why some put their savings at risk 

By Kathleen Connell

There is a desire deep down inside just about everyone to make that one big killing. That one financial move that will leave one set for life.

For most people, it’s wishful thinking. For some it is the story behind the story of how they lost a life’s savings. Americans lose tens of billions of dollars a year to investment fraud schemes. That includes people of all ages, but Americans over 50 are more vulnerable.

Think I’m talking about “Investing for Dummies”? Read on.

A recent AARP study has revealed that many of the victims share common behaviors. I suspect that to a one, the victims say they never saw the scam coming. But the research goes beyond that.

 

The survey by the AARP Fraud Watch Network finds that “the most susceptible typically exhibit an unusually high degree of confidence in unregulated investments and they tend to trade more actively than the general investor population. More of the investment scam victims also reported that they value wealth accumulation as a significant measure of success in life and acknowledged being open to unsolicited telephone and email sales pitches.”

One might say this is a polite way of saying these victims were over-confident. By no means do I want to blame anyone who has suffered losses at the hands of scam artists. But it’s a fair warning.

Investment scams are a big problem and the problem is getting bigger. Two of the reasons should be obvious: Concerns about economic security and the ability of investment scam artists to exploit new technologies.

“The decline in traditional pensions has prompted millions of relatively inexperienced Americans to take on the job of investing their own money in a fast-moving and complex market,” said Doug Shadel, Ph.D., lead researcher for the AARP Fraud Watch Network. “Meanwhile, today’s sophisticated technology makes it significantly easier for scammers to reach large numbers of investors.”

It’s important to note that victims should not be thought of as people who should know better. In fact, people who would appear to be more familiar with investing are no less vulnerable. Possibly even more vulnerable.

“While previous surveys in this area have developed a demographic picture of investment fraud victims – usually older, financially literate males who are more educated and have higher incomes – our goal with this survey was to learn about why people fall prey and how it can be avoided,” added Shadel.

The AARP survey determined stark differences between the past investment fraud victims and regular investors in three areas:

Psychological Mindset – More victims reported preferring unregulated investments, valuing wealth accumulation as a measure of success in life, being open to sales pitches, being willing to take risks, and describing themselves as ideologically conservative.

Behavioral Characteristics – Victims reported that they more frequently receive targeted phone calls and emails from brokers, they make five or more investment decisions each year, and more of them respond to remote sales pitches – those delivered via telephone, email or television commercials.

Demographics – Somewhat replicating the previous industry studies, higher percentages of victims were found to be of older age, male, married and military veterans.

A campaign has been launched to raise awareness of the growing trend and to warn consumers about how certain inclinations make them more vulnerable to investment scams. To get started, you can take an online quiz, which we have posted at http://www.aarp.org/rifraud. It can help you discover if you fit the profile of an investor at risk.

Finally, I will share the advice that accompanies the report.

  • Do: Invest only with registered advisors and investments.
  • Don’t: Make an investment decision based solely on a TV ad, a telemarketing call or an email.
  • Do: Put yourself on the Do Not Call list.
  • Do: Get a telephone call blocking system to screen out potential scammers.
  • Do: Limit the amount of personal information you give to salespersons until you verify their credentials.
  • Don’t: Make an investment decision when you are under stress. For example, when you’ve recently experienced a stressful life event such as the loss of a job, an illness or death of a loved one.

Kathleen Connell is State Director of AARP Rhode Island.

kathleen s. connell

On the Inside by Kathleen S. Connell

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