You know how sometimes you’re driving along and you hear something interesting on the radio, but you only catch the end of it and you’re dying to know more? I recently heard the tail end of a show about scams and how unbelievably clever these scam artists are, so I just had to call up the guest expert who was interviewed on the program. After all, I consider myself to be pretty savvy and scam-proof, just like you probably think you are. But wow. When I heard how even smart, savvy, sophisticated people are getting scammed left and right, I had to know how this happens. I had to learn how to protect myself. And then, of course, I had to alert you.
Why is this so important? Because my job is to make your life as streamlined and uncomplicated as possible, and, believe me, your life will get mighty complicated and stressful if you fall for scams.
I have written extensively about smart investing and I will continue to do so but, in the meantime, I want you to be on the alert for all the various ways that you could get caught off guard and lose all your smartly invested money. There is nothing smart about being a sucker, is there?
Did you know that every year Americans lose more than $40 billion to telemarketing fraud alone? Yikes! That’s a whole lot of money taken from a whole lot of victims, just like you and me.
Doug Shadel, director of the Washington State division of AARP, was the expert I heard on the radio. He is also the co-author of Weapons of Fraud: A Source Book for Fraud Fighters. This book is the result of a yearlong study conducted by AARP in conjunction with a number of different law enforcement agencies. Their goals were to identify the most common techniques or “influence tactics” found in telemarketing fraud pitches and then help consumers avoid them.
I highly recommend that you order your own copy of this book because it goes into much more detail than I can in this newsletter. Simply send an e-mail to weaponsoffraud@aarp.org and include your name, mailing address, and phone number. You do not need to be an AARP member.
What Doug told me about investment fraud surprised the heck out of me. Get ready for this one. Which group is taken most often by investment fraud: A) people who are financially literate or B) people who are not financially literate?
Everyone guesses the correct answer to be B—of course the financially illiterate get swindled most often, right?
Wrong! According to two big studies conducted separately by different organizations, it turns out that people who are financially literate get taken most often.
Gotta love those con artists, don’t you? They are extremely skilled at getting under your skin and going for your vulnerabilities, no matter who you are. In the case of someone who is financially literate, a con artist can find a number of entry points. One is to casually mention that the company to be invested in is partnering with Microsoft or Texas Instruments, or that Bill Gates is showing considerable interest in the investment and that the investment is receiving positive press coverage from the Wall Street Journal and CNN.
Or, consider what happened to 47-year-old Andrew Slater. He is married and a self-described professional investor. At the time he was swindled, he lived in an upscale house in a gated community in California. By all measures, he had been an enormously successful investor and stockbroker. One day he got a call from an investment company that claimed to have the deal of a lifetime—it was an Internet start-up company.
That was in 1997, just when the Internet boom was starting to go into the stratosphere. Andrew, like a lot of us, was lured by greed. The caller seemed to be a sophisticated investor, and the deal sounded fabulous. After getting satisfactory answers to his many questions, Andrew whipped out his checkbook and wrote the company a check for $10,000, hoping to make $200,000. He never heard from the company again.
What the studies showed was that financial literacy alone is not a safeguard against getting conned. You also need, shall we say, swindling literacy.
Doug says, “If all you do is teach financial literacy, and you don’t teach how to be aware of scams, then it’s like teaching the difference between various hands of poker, and not teaching bluffing strategies.”
But, of course, there are a million other ways that con artists can get your money, and sometimes it’s in person. One man admitted he was swindled, even though he thought he was immune to it since he is a smart guy from New York City and he thought he’d seen everything. That was, until he visited another town with his parents. They pulled into a downtown parking lot to look for for a space. While searching, a nicely dressed, authoritative-looking man walked up to them. He was holding a wad of bills and kindly pointed them to an open spot.
“Wow,” the man from New York thought. “This guy sure is helpful.” Then the man told him it would be $10. Mr. New York handed him a $10 bill, finished parking his car, and the nicely dressed, helpful man was out of there. Scammed. Sure, $10 won’t break Mr. New York’s bank, but I’m including this story to show just how insidious scamming has become in our culture.
Another common scam happens at ATM or bank deposit machines. The scam artist hangs an “Out of Service” sign on a bank deposit slot or ATM. The con artist then stands next to the machine wearing a guard uniform. (Posing as an authority figure is a great tactic because we are all taught to respect and obey authority figures.) Unsuspecting consumers see the sign and get frustrated that they are not able to make their deposit. The con artist sympathizes with the consumer and offers a solution: “I will make your deposit for you when the bank is open. All I will need is your bank account number.”
There are lottery scams, Nigerian businessman scams, gold coin scams, oil well scams, fabulous investment scams, Internet scams, e-mail scams, travel deal scams, sweepstakes scams, and pretty much any other kind of scam you can think of. Then there are “short cons” and “long cons.” A short con is fast, like the bank machine scam or a quick call telling you that your prize is waiting and all you need to do is send tax money or a similar line of nonsense.
A long con is one where the scammer builds a relationship with you over time and then goes in for the hit. A common example is the use of telephone surveys. Con #1 collects personal data from you during the seemingly legitimate survey for a television station, governmental agency, or company XYZ. Con #2 then uses that information to bilk you during the next call. For instance, during the “survey,” the caller might ask if you have children or grandchildren. You answer, “Yes, you have two grandchildren.”
Con #2 then calls—it could be days or weeks later—and engages you in a conversation about the importance of leaving a legacy to your grandchildren, and he happens to have just the perfect plan for you. After all, you love your grandchildren, and you want to make sure they are taken care of, don’t you?
If you don’t want to be swindled by a scam artist, here is what you need to know:
Look for fraud everywhere you go.
When you are presented with a sales offer, ask yourself two questions:
- Is this something I need or want?
- Is this a scam?
Look for scam warning signs:
- You are asked to send money to claim a lottery or prize to obtain a credit or loan. (Don’t ever send money anywhere unless it’s to a legitimate business that you know about.)
- You are asked to send money to someone you do not know personally or whose identity you can’t verify.
- Someone you don’t know is requesting money sent via a wire service. (This is the number one way money is transferred to fraud criminals.)
- An unknown caller claiming to be a lawyer or in law enforcement will help you get your money back (for a fee). How does this happen? Because the con game has gotten so sophisticated that con artists communicate with each other and they know who has been scammed previously and who is an easy mark.
- The deal is only good for today or a short period of time.
- The seller offers “free gifts” in return for a minimum effort or a fee.
- A “repair person” suddenly finds a dangerous defect in your car or home.
- You are given little or no time to read a contract.
- A sale item is suddenly unavailable, but a “much better item” is available for slightly more money.
- Someone is trying to scare you into purchasing a credit card or other protection plan.
In addition, follow this advice to help you avoid getting scammed:
Understand the tactics. Scam artists use a lot of psychological methods to get you to part with your money. A few methods include: posing as an authority figure; playing on your sympathies; building you up as an “expert” in some field and then taking advantage of that, such as when you are financially literate; using fear and intimidation; and giving you something so you feel obligated.
To show how easily we fall for this game of “obligation,” check out this experiment that was done by a college. Researchers took the first 100 people in the phone book and mailed them Christmas cards. These people were total strangers. A full 60 of those people mailed a Christmas card back! Why? Because it’s human nature to reciprocate. Had this been a real scam, the cons would have known that those 60 people were easy marks for the future.
Don’t give out personal information. Information such as your Social Security number, credit card and bank account details, and date of birth can all be used to either steal your identity or help persuade you using influence tactics. Want to know how easily this happens?
The Federal Trade Commission set up a pretend “sting” to show people how vulnerable they really are. They offered a legitimate financial workshop. When people came to the workshop, they offered a drawing for a free book. All the audience members had to do was fill out a card with their name, address, Social Security number, and date of birth, and at the end of the workshop they’d be able to participate in the drawing.
- Hang up on all telemarketers.
- Be proactive.
- There is no free lunch.
- Always check out whoever you plan to work with.
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Believe it or not, 75 of the 100 people filled out the cards with all of that information. The workshop leader then said, “For all of you who never thought you’d fall for a scam, you just did.” Something about that free prize mentality can get you into a heap of trouble.
Slow down. Don’t let anyone rush you into making a decision. If someone calls and tells you “it can’t wait” or “the decision must be made immediately,” then don’t do it. There is no deal out there that can’t wait 24 hours while you think about it. Remember the best rule of all: When in doubt, do nothing.
Have a plan. Having a plan for terminating a potentially fraudulent interaction is one of the most important steps you can take to avoid fraud.
If you want to cut through all of the thinking and make your life easy, just follow my four simple rules.
My first simple rule: Be rude—hang up on all telemarketers.
I simply hang up on all sales calls, requests for charitable donations, offers for free cruises and trips, and requests to be part of a survey. Period. That way I don’t have to try and distinguish a legitimate one from a fraudulent one and, frankly, nobody has the right to intrude on my personal time—not a legitimate survey or a
legitimate charity, or anyone else who I have not invited into my life.
My second simple rule: Be proactive.
If you want to donate to a charity, then don’t sit around and wait until they call you (a lot of those calls are phoney), or until some sad face comes knocking on your door.
Instead, do your own research and decide ahead of time which charities you want to support. If you need to repair your house, ask friends who they use and call the companies yourself. Don’t wait for XYZ construction to call you. What kind of legitimate business with a good customer base needs to resort to telemarketing, anyway?
If you want to refinance your house, for crying out loud, research and find your own mortgage broker. I have friends who, indeed, were scammed by a con artist telephone solicitor who was offering a great rate on a refinance. My friends lost a lot of money—and they are sophisticated and intelligent. The scammer even had an office my friends went to. The only problem was that the office soon picked up and disappeared, along with their money. If you want to make an investment, ask friends which investment advisor they use and trust. Why on earth would a legitimate broker need to make cold calls to offer you the moon? And if the deal was so hot, why would they be sharing it with you, a total stranger?
My third simple rule: There is no free lunch.
If a deal sounds too good to be true, it probably is. If something seems fishy, it probably is. If your gut says walk away, start walking. Don’t let laziness or greed cause you to make stupid decisions.
And my fourth simple rule: Always check out whoever you plan to work with. You can start your research by contacting the Better Business Bureau (www.bbb.org).
Be safe!
Yours in simplicity,
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