Why So Many People Are Victims Of Financial Scams

We’ve all fallen for a too-good-to-be-true financial offer or promotion and lost a buck or two. People with a mailbox probably get junk mail. Likewise, people with email accounts get spam and phone users get robocalls.

We’re constantly bombarded with unnecessary messages and solicitations on a regular basis. Although most of us ignore, delete or toss these messages and solicitations in the rubbish given that most of them are likely scams, others are not so fortunate. Russian billionaire Dmitry Rybolovlev won’t be hit as hard with these scams as the lower and middle-class population, but that’s neither here nor there.

The point is that scams cost people, organizations, and governments trillions of dollars annually in estimated losses. As a result, they all endure depression and ill health. In fact, this is a crime unlike any other, that affects so many people from almost all backgrounds, ages, and geographical locations.

But the question that comes to mind is, why are so many people falling prey to these financial scams? Stacey Wood, professor of psychology at Scripps College and the co-authors of his study reviewed 25 “successful” mass-market scam solicitations, looking for common themes.

Why So Many Fall For Financial Scams?

Most of the scammers use big brands such as Costco and Marriott to increase their credibility and “authority.” To be frank, scammers use persuasion techniques frequently in which they pretend to be a legitimate business and use local area codes to foster familiarity or make sensitive claims to increase motivation.

Some of the letters that were reviewed in the study included images of money or prizes and past “winners.” Others were very business-like which included some legal-sounding text that added a depth of legitimacy.

Professor Wood then created a prototype one-page solicitation letter in which consumers were told they were “already a winner” and listed an “activation number” that the would need in order to contact or claim their prize. Four versions of these were made and assigned at random, passing off as authority authority (“We obtained your name from Target”) or pressure (“Act by June 30th”) to authority (“We obtained your name from Target”) or apply pressure (“Act by June 30th”) to determine what persuasion factors motivated consumers more to respond.

In the first experiment that involved 211 participants, 48% of them indicated some willingness to contact the number, regardless of the type of letter they had received. Those who were more likely to respond to this option had fewer years of education and were younger. The participants also tended to rate the risks as low and the benefits high.

In the second experiment involving 291 participants, it was reported that even with the activation fee, 25% of the sample indicated some willingness to contact the number provider – a fifth of them said that the fee would be around $100. And like the first experiment, participants rated the solicitation as having high benefits and were more likely intended to contact.

But even though 60% of them identified the solicitations as a possible scam, they viewed the opportunity as potentially beneficial. Perhaps in some ways, these advance fee scams may appear as unofficial lotteries, being low cost-of-entry and having a high chance in failure. While customers vary, they don’t entirely write off the possibility of a big payoff, and some are clearly willing to undertake the risk.

Sadly, consumers overestimate their ability to back out even if the offer turns out to be a scam. And as soon as these potential “suckers” have been identified by responding to an actual solicitation over the phone call or by clicking in a fake ad, they could be relentlessly targeted by phone, email, and mail.

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Introvert, wanderer, blogger, foodie, a hip-hop music writer, and one of the co-founders of a tech start-up company called GigsManila.