Whether it's identity theft or romance scams, there is an ever-growing list of methods that fraudsters are using to try and bilk you out of your hard-earned money. Understanding what makes for an effective financial scam can help you avoid that.
While big-name scandals like Enron and Bernie Madoff's Ponzi scheme grab headlines for costing investors millions, other financial frauds can be as damaging for consumers. In 2018, people reported losing more than $1.4 billion to fraud, up 38% from 2017, according to data from the Federal Trade Commission. Even the old "Nigerian prince" scam still nets hucksters more than $700,000 per year.
Here's what these scams have in common, and steps you can take to protect yourself — and your bank accounts.
Ben Carlson is the author of the new book "Don't Fall For It: A Short History of Financial Scams," which details a number of famous financial frauds throughout history. The stories include the history of the "Nigerian prince" email scheme, and the man who tried to sell the Eiffel Tower — twice!
And Carlson, who's also a chartered financial analyst and director of institutional asset management at Ritholtz Wealth Management, says that most financial scams targeting individuals tend to have one thing in common: The person at the center of the scam has "an innate ability to sell a good story."
Scammers "are not only good at telling good stories and selling people, but they really understand human nature and how to push the right buttons to get people to do things that otherwise they wouldn't want to do," he says.
Spotting telltale signs that you're being sold a story is the key to making sure you don't buy it. Carlson has three pieces of advice to keep your money safe from scammers:
Video by David Fang
While scammers are always going to come up with new and more intricate schemes, most people can keep their money safe by taking time to think through financial decisions. That increases the chance you'll spot the fraud before it's too late.
"As with most things in life," Carlson says, "If it seems too good to be true, it probably is."
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