Americans Struggle to Identify Financial Scam Red Flags

Financial fraud is more commonplace than people might think, with more than 80% of Americans solicited to participate in a potentially fraudulent offer.

Financial fraud is more commonplace than people might think, with more than 80% of Americans solicited to participate in a potentially fraudulent offer.

The FINRA Investor Education Foundation revealed that because many Americans have unrealistic expectations of market returns, $50 billion per year is lost to fraud. Of those who have participated in fraudulent offers, 11% lost a significant amount of money.

"When it comes to financial fraud, America is a nation at risk," said FINRA Foundation President Gerri Walsh. “Fraudsters are very effective at reaching and enticing vulnerable populations into turning over their money, and far too few Americans are able to detect likely fraudulent sales pitches.”

What is particularly concerning is that many Americans cannot identify the classic red flags of fraud, according to FINRA. More than 40% of respondents found an annual return of 110% for an investment and “fully guaranteed” investments were appealing. However, both are common pitches of fraudsters and are highly improbable in reality.

As other studies have revealed, older Americans (65 years and older) are particularly vulnerable to financial scams — more likely to be targeted and more likely to lose money once targeted. Older Americas are 34% more likely to lose money once targeted than respondents in their 40s.

Some of the most common tactics were receiving emails from another country offering money in exchange for an initial deposit or fee and invitations to “educational” investment meetings that were likely sales pitches.

The survey included a list of statements that should be considered red flags. A stock outperforming the Dow was the most appealing statement followed by promises of returns of at least 50% and full guaranteed investments.

According to the survey, men were slightly more likely to be solicited than women (84% to 81%), more likely to invest (39% to 42%) and more likely to lose money (14% to 8%).

While it makes sense that those with higher salaries are the most likely to be solicited and, consequently, invest, those with income over $100,000 actually lost less money than those with income between $75,000 and $100,000.

And education won’t save you. Those with post graduate schooling were solicited the most (91%) and they were more likely to lose money (17%).