5 Common Financial Scams to Look Out For
5 Common Financial Scams to Look Out For
The hard truth is that scammers are out there, and they’re getting pretty creative. Their end game is to get their hands on your money, or your personal information so they can access your finances. According to the latest data from consulting firm Javelin Strategy & Research, identity fraud scams alone resulted in $28 billion in losses in 2021, affecting 27 million U.S. consumers.
That’s why I’m a big fan of the phone-a-friend rule. Before transferring money or doling out personal information, do a quick gut check with someone you trust to get some perspective. It could save you from a financial nightmare. On that note, let’s unpack five super common financial scams to look out for. Knowing how they work is usually the best protection.
TL;DR: DO NOT WIRE MONEY OR SHOW UP WITH CASH, IT’S ALWAYS A SCAM
1. Cryptocurrency Scams
Investing in crypto can be a great way to stay diversified (and hopefully net a return in the long run). But that’s assuming you have a strategy and are going through a legitimate cryptocurrency exchange like Coinbase, Gemini or Binance. A huge red flag is being contacted by someone posing as an investment manager. These fraudsters typically promise big returns if you buy cryptocurrency and store it in one of their investment accounts. Let’s get real; it’s impossible to guarantee investment gains. Other scammers will ask you to send them money so they can invest in crypto for you.
How to Avoid It
When it comes to Bitcoin scams, or any other kind of crypto fraud, ask yourself one very important question: Why am I wiring money? There’s a reason why the U.S. banking system has such rigid rules and regulations. It’s to protect consumers. The main takeaway here is to never send money to someone who promises to make you rich from the crypto market.
2. Tax Identity Theft
Tax season is in full swing, which creates some unique opportunities for scam artists. Tax identity theft is a real thing. This is when someone poses as you and uses your personal information to file a tax return in your name. Translation: they can steal your tax refund. In 2022, there were 78,588 reported cases of tax fraud, according to the FTC.
How to Avoid It
There are lots of ways that scammers can get your personal information. Be sure to safeguard things like your Social Security number, bank account numbers, routing numbers, and passwords. Using strong passwords and two-factor authentication can help. If you’re using public Wi-Fi, a VPN can provide additional protection. Also look out for emails or phone calls from the “IRS” requesting personal information. The IRS will NEVER call you. They will always mail you a letter. If you receive a phone call from someone claiming to be the IRS, hang up.
3. Social Media Scams
The FTC calls social media “a gold mine for scammers”. From 2017 to 2021, fraud losses initiated on social media platforms increased eighteenfold. There are all kinds of ways this can happen. Lots of people are ripped off by:
Misleading ads for fraudulent or counterfeit products
Romantic interests who build a relationship and then ask for money
Investment schemes that turn out to be bogus
How to Avoid It
Social media can be a great place to find cool services and products. (There’s a reason why major brands and small businesses invest in social media ads.) But be sure to do your homework before making a purchase. Double-check that the brand is credible and has good reviews before forking over your cash. If you meet new people through social media platforms or dating sites, never transfer money or share your personal information.
4. Ransomware Threats
This can cause a massive headache, and serious losses, for individuals and businesses. It usually starts with a seemingly harmless email or text containing a link or attachment. Once opened, malicious software is unleashed, effectively holding your data hostage. The ransomware attacker then demands money or cryptocurrency to restore everything. If this happens on a business network, it can compromise customer and employee data—and bring your business to a screeching halt.
How to Avoid It
Never open attachments or click on links within messages from people you don’t know. Even if you do know the person, it can still be a scam. If you get a weird Facebook message from your Aunt Sally asking you to click on a suspicious link, don’t do it. Odds are she was hacked. It’s also wise to frequently back up your data and use the most updated security software on all devices.
5. Imposter Scams
Imposter scams come in all shapes and sizes, but the gist is that someone contacts you pretending to be someone they’re not. The Federal Trade Commission just released an alert warning consumers about scams that use artificial intelligence to create voice clones. Imagine getting a panicked phone call from someone you love asking for money—and it sounds just like them. Imposter scams can also include someone posing as a tech support agent, or a representative from a government agency like the IRS or Social Security Administration.
How to Avoid It
Be very careful sending money or sharing personal information with someone who contacts you over the phone or via email. If it’s a legitimate inquiry, like a medical provider trying to settle an outstanding balance, for example, you can request that they send an itemized bill in the mail so you can review the charges. If the person on the other end is pressuring you with a sense of urgency to pay now, that’s fishy for sure. And remember the phone-a-friend rule!
Proceed with Caution
Financial scams are becoming increasingly sophisticated and prevalent, with billions of dollars lost each year. However, with a little bit of skepticism and some common sense, you can protect yourself from falling victim to these scams. We hope we’ve given you a heads up on some of the more common ones so you can avoid them. When in doubt, we’re here to help keep your finances safe.
Never feel embarrassed about emailed your financial advisor with a suspicious looking request. In conclusion, remember to never wire money or show up with cash, always ask yourself why you are wiring money, safeguard your personal information, do your homework before making a purchase or investing in cryptocurrency, and be wary of anyone contacting you over the phone or social media. And most importantly, when in doubt, phone a friend! Stay smart and stay safe out there, folks.