As people age, they often become more vulnerable to financial scams. Here are some common ones and tips on how to avoid them.
If you’ve spent your entire life carefully and methodically building up retirement savings, the last thing you want is someone trying to snatch that money away. Unfortunately, many elderly people face financial scams designed to separate them from their hard-earned cash, with new schemes popping up all the time. If you’re getting older, it’s critical to understand what some of the hucksters are up to and how to avoid falling victim.
Financial exploitation is the illegal or improper use of a vulnerable person’s funds, property, or assets. Although any investor may potentially be at risk, the elderly often find themselves in more danger. That’s because mature investors tend to have large cash flows, feel embarrassment about being less capable to manage their own affairs, often trust professionals, and have varying degrees of cognitive function.
Financial abuse costs older Americans more than $2.6 billion annually, according to a MetLife study. Another study conducted by the New York State Office of Children and Family Services found that one in 13 older adults in the state had been victims of elder abuse in the previous year, with major financial exploitation reported at a rate of 41 per 1,000 surveyed.
Financial fraud might conjure up those emails many of us get from an “Ethiopian prince” asking for cash and promising more in return. Sadly, however, if you’re an older American, statistics show you’re more likely to fall victim to someone you know. A 2014 study of 4,156 elderly adults published in the Journal of General Internal Medicine found that family members were the most common perpetrators of financial exploitation of elderly adults, at 57.9%, followed by friends and neighbors (16.9%) and home health care aides (14.9%).
Even if you feel pretty capable of managing your money and avoiding exploitation, it can be useful to recognize the types of scams out there and learn ways to protect yourself and your money. No one is necessarily immune. Here are a few of the more common financial scams at the moment, according to the Securities Industry and Financial Markets Association (SIFMA), though it’s important to realize that the tactics and the scams themselves often change as criminals try to keep ahead of the law.
Lottery scam: This is one of the most common and successful scams. Fraudsters call seniors telling them they’ve won a large sum of money and all they need to do to collect their prize is pay upfront processing fees or taxes. The caller begins in a friendly manner, although over time the calls may become threatening and the collection tactics aggressive.
Sweetheart/romance scam: This Internet-based scam uses fake profiles on dating sites and in social media to target victims, establish a romantic relationship, and then make pleas for financial assistance to drain the resources of the smitten victim. If successful, this scam may progress into outright blackmail, with the perpetrator knowing that the victim doesn’t want public knowledge of their actions.
Foreign letter fraud: The recipient of the letter or e-mail is given the “opportunity” to share in a percentage of the money the sender is trying to get out of their country. The recipient is encouraged to send tax money and/or his or her bank information for ease of transfer. This is along the lines of the “Ethiopian prince” trick mentioned earlier.
Grandparent scam: A senior receives a phone call from someone claiming to be their grandchild who’s in desperate need of money and unable to approach his or her parents. The scammers often rely on information found on social media to defraud the seniors, and tend to strike during school breaks.
Affinity scam: In this one, a fraudster claims to be a member of the same ethnic, religious, career, or community-based group to gain the target’s trust.
Recognizing scams is just the first step. Elderly investors should also understand how to avoid being victimized, and prepare ahead of time.
One way to prepare applies to all investors, not just the elderly. Have a plan for your financial future. As you get older, it’s important to discuss your plan with the people you trust or your financial planner. Consider designating powers of attorney in case you become unable to make financial decisions on your own.
You should also consider learning more about cognitive decline—a condition that can render you more vulnerable to scams—so you can recognize it in yourself or your spouse or life partner. Also, if possible, stay in touch with friends and family members so you have others who care about you and look out for you.
When handling financial matters, be aware and cautious. Take the following steps whenever you make investment or financial planning decisions:
Despite the best preparation, you might still fall victim to financial scams. If this happens, don’t panic. First, immediately place a fraud alert on your credit report and notify the appropriate banks, brokerage firms, and credit card companies to report the fraud and help prevent future fraud activity.
Then begin to gather and document all conversations and/or correspondence you’ve had regarding the theft. Contact the local authorities and share any documentation you’ve collected. Depending on the type of activity, file a complaint with the Federal Trade Commission (FTC), U.S. Postal Service, or the Social Security Administration.
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