Financial Scams and How to Avoid Them

The amount of money being stolen via financial scams every year is decreasing. However, the number of victims is increasing, hinting towards a very dangerous trend, which suggests that scammers are increasingly focusing their efforts on poorer victims, opting for the low-hanging fruit of everyday Americans as opposed to the ripe pluckings of big businesses.

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The good news is that most scams are transparent and haven’t advanced much from the classic Nigerian 401 scam, where recipients were promised countless millions from mysterious Nigerian princes. The bad news is that a small minority of these scams are very devious and can catch anyone unaware at any time.

It’s important to remain aware, to stay vigilant, and to understand what the scammers are doing. That’s where this guide comes in.

Do Online Scams Really Work?

The idea that anyone would fall for classic scams such as the Nigerian 401 might seem preposterous, but there’s a reason those scams still exist, a reason those emails still land in your mailbox: They work.

In 2019, CNBC reported that this classic, laughably stupid scam still rakes in over $700,000 a year for the scammers. This means that thousands of victims are still falling for it. And it’s not the only one. There are many more scams out there and most are more effective.

So, what’s going on here, why are these scams still working?

It all boils down to a few basic principles, things that the scammers rely on:

  • Greed/Desperation
  • Ignorance
  • Opportunity

Everyone likes to think they are immune to these issues, but you’d be surprised:

Greed and Desperation

Imagine that you’ve hit rock bottom. You have more debt than you can afford to repay, and life is generally terrible. Most of your disposable income goes on funding a gambling/drug addiction and the rest goes towards bills.

Out of the blue, you get an email claiming that you’ve just won the sweepstakes and all you have to do is reply. No strings attached, no cost, no issue. But as soon as you reply, they ask for a little money and give you a believable story about why they need it. You use what little money you have to pay them, and they ask for more and more.

In the end, you’re not only desperate for money to help you in your time of need, but you’re also chasing money because you desperately need the story to be real. You need to get your money back, to tell yourself that you didn’t just make a stupid mistake and were right to trust them. 

This desperation is what scammers rely on and it’s why they will often sell a victim’s details to other scammers so they can target them again and again.

Ignorance

You don’t need to be completely computer illiterate to fall for these scams. That’s probably the case for the thousands of victims making friends with virtual African princes, but not all scams rely on this extreme level of ignorance. 

Sometimes, scammers rely on a victim’s limited understanding of cybersecurity, tax law, consumer law, and other complicated things. You might think you can smell a scam a mile away, but if they bamboozle you with technical terms you know nothing about, you can be a victim just like anyone else.

Opportunity

This is the one that can catch even the smartest and most diligent of consumers. It’s a simple case of being at the wrong place at the wrong time. For you, it’s bad luck, but for the scammer, it’s a numbers game. If they target thousands of victims, there’s a good chance a few of them will land as expected.

Let’s use a popular online retail scam as an example. This scam involves sending you an email purporting to be from Amazon, eBay or another major retailer. It uses the same insignia and wording and claims that your order is being processed. The “order” typically mentions a high-ticket item, one that costs several hundred or thousand dollars.

At the same time, you were recently informed by a credit agency that your password may have been stolen and that you should change it immediately. Upon seeing this scam email, you make a snap decision and believe that someone has hacked your Amazon/eBay account and has just made a purchase using your details.

You click the link or download the “invoice”, expecting to be given a chance to cancel the order, and now they have you. That attachment contained a virus, that link took you to a cloned site and the details you entered were stolen.

That’s all it takes and it’s why everyone is susceptible and needs to remain vigilant.

The Most Common Financial Scams

Before we give you some tips on avoiding common scams and staying safe online, it’s time to look at the scams currently doing the rounds and robbing unsuspecting victims of their money, assets, and ID.

Phishing Emails

Phishing emails are some of the most common scams. Every time you put your email address online or use it to sign up for a newsletter, it can be picked up by scammers who will then send you emails claiming to be from legitimate companies.

The most straightforward phishing scams will convince you there has been an issue with your bank account or credit card. To fix this issue, you need to click the link in the email, visit the site, and login in. The problem is, that site isn’t run by the bank and when you enter your details they go straight to the scammer.

IRS Scam

One of the most common financial scams of the last few years begins with a phone call claiming to be from the IRS. The caller claims that a large tax debt is owed and if it’s not paid, the police will be called, and the debtor will be arrested.

Scammers even go as far as to state that the police are just around the corner, waiting for the signal to arrest the debtor. It’s preposterous, but somehow, it works. Scammers often request payment in gift cards, such as iTunes and Google Play cards, as these can be redeemed for cash and can’t be traced.

Family Emergency Scam

This one surfaced a few years ago but gained traction in 2019. The scam begins with an email from a loved one’s account. They claim they are lost in some foreign country, have had their money and passport stolen, and are in dire need of money. 

The messages are sent from their personal email or social media account and play on the hope that friends and loved ones will not waste time transferring money.

But of course, that money goes straight to the scammer, with the account holder being completely unaware that these emails are being sent.

If you ever receive a message like this from a friend or family member, phone them first. If you can’t get through on the phone, send them a message through social media or call someone who is close to them. 

Overpayment

The overpayment scam exists in many forms and there are a few scams at play here. Historically, this scam began with a check in the mail with the scammer then claiming that you were due a reimbursement/award but they paid you extra by mistake. They request that you repay them the overpaid funds via wire transfer, but as soon as that money clears, the check bounces and you get nothing.

In recent years, this scam has flourished on auction sites. Scammers wait for big-ticket items to go on sale and then contact the seller by private message, often offering the full asking price or more. 

They pay more money than the agreed price and then ask that the additional funds be repaid, often in the form of gift certificates or other dubious methods. The seller, believing they have the money from the sale, doesn’t hesitate. However, a few days later, that cash leaves their account after being pulled by the bank following a charge-back.

The scammer, using a stolen credit card, walks away with a cash sum and an expensive big-ticket item, the latter of which is often routed through their own “private” delivery company, purportedly with the aim of making the process quicker and cheaper for the seller, with the actual goal being to cover their steps.

Student Aid Scam

These scams begin with companies offering to help students get the student loans they need at a rate they can afford. They claim they can make the application process quicker and easier and will do all the legwork. Some companies even claim they have access to a specific government program that few students know about.

But it’s all a scam. You can get federal student aid directly through the FAFSA portal and that aid is paid to your university, not your bank account. What’s more, these programs are offered to every student who meets a list of criteria and they are not a secret.

How to Avoid Financial Scams

Sometimes, there’s nothing you can do to avoid being the victim of identity theft. Your details could be stolen in a data breach and then sold on the dark web as part of a package. Hackers can then use your name, email address, and password to access other accounts and make your life very difficult.

Your card number can also be stolen by everyone from a hacker infiltrating an online retailer to a bank employee on the other end of the phone.

However, while you can’t prevent data breaches and random acts of credit card theft, you can reduce your chances of being a victim of such attacks and eliminate other risks altogether.

Ignore Spam

A legitimate email may land in your spam folder every now and then and if it’s from someone you know, you can trust it, and read it. However, if an email is unsolicited and sent by a bank or credit card provider, you can ignore it. There’s a good chance it’s a scam and if not, the recipient will contact you via another method.

Most banks and credit card providers will call you if there’s an issue with your account. They understand how prevalent phishing scams are and to help you avoid them they often adopt a policy of never emailing you when there’s an issue.

Use Unique Passwords

It can be a pain to remember many different passwords, but if you want to keep your accounts safe, this is what you need to do. Every site you join should have a unique, long, and secure password. 

You can use a few different techniques to help you remember these passwords. One of the easiest ones is to keep them all in a secured file on your company (protected by a password you will remember) and then use the auto-fill function on your browser. It will do the remembering for you and if there is an issue, such as a cleared cache, you can simply access the file.

Alternatively, you can use a simple memory trick. Create a 4 to 6 character password that contains random numbers and can be remembered with relative ease. For extra security, don’t use your birthday or phone number. This number can then be used on every site you join with the addition of extra characters relating to the site.

As an example, let’s assume that you use the number 47182. Your Amazon account password may look like this: AMA47182 or Ama47182zon or any other variation. 

Don’t Download Attachments or Click Links

If you receive an email stating there has been an issue with your account, close the email, open your browser, and visit the site directly. If they send you an attachment and insist you open it, leave it alone, phone them, and ask if it’s legit. In most cases, it will be a scam, but if you want to double-check, you can contact them directly.

Check the Site is Secure

Before you make a purchase online, it’s important to check that the site is secure. Look for the padlock symbol next to the URL, which should begin “HTTPS” and not “HTTP”. This is displayed on all sites backed by an SSL certificate, which ensures that your details can be transferred safely. 

Ignore Ludicrous Claims

If you have your doubts about certain claims, trust those instincts and back away. The IRS Scam mentioned above is a great example of this. Even the most vulnerable of victims must have their doubts when someone with an Indian accent claims they are from the IRS and will arrest them if they don’t pay a non-existent tax debt in iTunes cards. 

It’s preposterous and relies on fear, but if you place your hunches before your fear, you’ll recognize it for what it is.

No Legitimate Company Requests Gift Cards

Scammers have gotten desperate in recent years. They can’t use money transfer services anymore because all activity can be traced and while some of them have switched to Bitcoin, most request gift cards.

Gift cards can be purchased by everyone and are sold in many local stores. All victims can get their hands on these cards and that, along with the fact they are untraceable, is why scammers prefer them. 

Bitcoins would make more sense and they are used for more complicated scams, but generally speaking, if a victim is naive enough to fall for the IRS scam or another obvious scam, they won’t understand what Bitcoins are or how they work.

That doesn’t mean, however, that a company requesting bitcoins is legitimate. In fact, if you’re concerned about the legitimacy of a transaction, you should offer to make a payment via PayPal or another secure service. Not only will it be traceable, but you can also initiate a chargeback and recover your funds if it turns out to be a scam.

Too Good to be True

This is an oldie but a goodie—if it sounds too good to be true, it probably is. No one is going to contact you out of the blue to give you money, especially if that transfer requires you to pay them a fee.

Everyone wants money for nothing, everyone has heard stories of people winning sweepstakes and lotteries, but you can’t win if you didn’t enter and no lottery requires a fee to activate your winnings.