11 Most Common Financial Scams and How to Avoid Them

Financial scams can have a devastating impact on individuals and businesses. Fraudsters are constantly coming up with new ways to deceive people and steal their money and if you’re not careful, you could be their next victim. In this article, we will cover the most common financial scams that we’ve found and provide tips on how to avoid falling victim to them.

Phishing Scams

Phishing scams are one of the most common types of financial scams. Phisher-men (pun intended) will send out fraudulent emails, texts, or phone calls that appear to be from legitimate companies. The goal of phishing scams is to trick people into giving away their personal information, such as usernames, passwords, and credit card numbers if they believe the fake links.

How to avoid phishing scams

• Be cautious when receiving unsolicited emails or phone calls.
• Never provide personal information unless you are certain that the person or company requesting it is legitimate.
• Always go to the company’s actual website (if any) and double-check the sender’s email address or phone number.
• Be wary of urgent requests for information.

Investment Scams

Investment scams are designed to lure people into investing in fake or fraudulent companies. These scams often promise high returns with little risk. They can take many forms, including pyramid schemes, pump-and-dump penny stocks, and foreign currency scams.

How to avoid investment scams

• Do your research and be skeptical of any investment opportunity that promises high returns with little risk.
• Always check the credentials of the company and the people offering the investment.
• Never invest in anything that you don’t fully understand.

Ponzi Schemes

Ponzi schemes are a type of investment scam that promises high returns to early investors. The scammer uses the money from new investors to pay returns to earlier investors, creating the illusion of a profitable investment. Eventually, the scheme collapses, and many investors lose their money.

If you’re interested to learn about Ponzi schemes, check out the docu-series MADOFF: The Monster of Wall Street on Netflix which details one of the craziest Ponzi schemes that resulted in as much as $60 billion stolen!

How to avoid Ponzi schemes

• Be skeptical of any investment opportunity that promises high returns with little risk.
• Always do your research and check the credentials of the company and the people offering the investment.
• Be wary of investments that require you to recruit new investors.

Lottery Scams

Lottery scams involve fraudulent emails or letters that claim the recipient has won a lottery or sweepstakes. The scammer will often ask for personal information or payment of fees to claim the prize.

How to avoid lottery scams

• Remember that you cannot win a lottery or sweepstakes that you did not enter.
• Be skeptical of unsolicited emails or letters claiming that you have won a prize.
• Never provide personal information or pay fees to claim a prize.

Identity Theft

Identity theft involves the fraudulent use of someone else’s personal information, such as their name, social security number, or credit card information. The scammer may use this information to open credit accounts, take out loans, or make purchases without the victim’s knowledge or consent. In some cases, the victim may not even realize that their identity has been stolen until they receive bills or collection notices for debts they didn’t incur.

I wrote more about what to do if you’re a victim of credit card fraud here.

How to avoid identity theft

• Safeguard your personal information.
• Always shred documents containing sensitive information before disposing of them.
• Use strong, unique passwords and be cautious when providing personal information online.
• Check your credit report regularly for any unauthorized activity.
• Use Multi-factor Authentication (MFA) whenever possible.

Tech Support Scams

Tech support scams involve fraudulent phone calls or pop-up messages that claim to be from a legitimate tech support company. The scammer will often claim that there is a problem with your computer and ask for remote access to fix the issue. Once they have access, they may steal personal information or install malware.

How to avoid tech support scams

• e cautious when receiving unsolicited phone calls or pop-up messages.
• Never provide remote access to your computer unless you are certain that the tech support company is legitimate.
• Always do your research and check the credentials of the company.

Gift Card Scams

The gift card scam typically starts with a phone call or email from someone pretending to be a government agency, company, or charity. They may claim that you owe money, your account has been compromised, or you have won a prize. The scammer will then instruct you to purchase gift cards and provide the card information over the phone or email.

Once the scammer has the gift card information, they can use the value on the card to make purchases or transfer the funds to another account. Unfortunately, gift cards are untraceable, making it almost impossible to recover the stolen funds.

Scammers often target the elderly, who may be more trusting and less tech-savvy. They may also prey on people’s emotions, such as fear, excitement, or sympathy. The scammer may pressure you to act quickly, threatening legal action or promising a reward.

How to avoid gift card scams

• Remember that no legitimate company or agency will ask you to pay with gift cards.
• If someone asks you to do so, it is most likely a scam.
• Additionally, do not provide any personal or financial information to someone you do not know and trust.
• If you receive a suspicious call or email, hang up or delete the message immediately.

Money Mule Scams

Money mule scams involve recruiting people to receive and transfer stolen money on behalf of a criminal organization. The recruited individuals may be unaware that they are participating in illegal activities and may be held liable for the stolen funds.

If you like Clint Eastwood and would like to watch a movie about an old man who unknowingly became a drug mule, check out The Mule movie.

How to avoid money mule scams

• Be cautious when receiving job offers that involve transferring anything. Especially when they pay really well.
• Always do your research and check the credentials of the company.
• Be wary of any job offer that involves receiving and transferring money on behalf of someone else.

Employment Scams

Employment scams involve fraudulent job offers that require payment of fees or personal information. The scammer may promise a high-paying job but require payment of a fee to secure the position.

How to avoid employment scams

• Be cautious when receiving job offers that require payment of fees.
• Always do your research and check the credentials of the company.
• Be wary of any job offer that seems too good to be true.

Charity Scams

If you have a good heart and love to give, that is great but beware of charity scams. Charity scams involve fraudulent solicitations for donations to fake charities or non-profit organizations. The scammer may use high-pressure tactics to solicit donations or claim that the funds will go towards a specific cause, but keep the money for themselves.

How to avoid charity scams

• Do your research and check the credentials of the charity or non-profit organization.
• Be wary of high-pressure solicitations
• Always double-check the legitimacy of the organization before making a donation.

Romance Scams

For all you hopeless romantics out there, beware of romance scams. Romance scams involve fraudulent online relationships that are used to solicit money or personal information from the victim. The scammer may pose as a romantic partner and use emotional manipulation to obtain funds.

They may then ask for money for various reasons, such as medical expenses, travel costs, or a sudden emergency. In some cases, the scammer may continue to ask for money over an extended period of time, creating a cycle of financial exploitation.

A well-known example of a romance scam is the “catfishing” scam, where a scammer creates a fake online persona to lure in victims for financial gain. The scammer may use a fake name, photos, and details to create a convincing identity and establish an emotional connection with the victim.

How to avoid romance scams

• Be cautious when developing relationships online.
• Never send money or provide personal information to someone you have not met in person.
• Be wary of individuals who claim to be in love after a short period of time.

Real Estate Scams

Real estate scams involve fraudulent real estates transactions, such as rental scams or mortgage fraud. The scammer may offer a property for rent or sale that they do not own or may obtain a mortgage without the owner’s knowledge or consent.

In rental scams, the scammer may ask for payment of a deposit or fees before the potential renter has had a chance to view the property.

In mortgage fraud, the scammer may obtain a mortgage on a property that is worth less than the mortgage amount, then disappear with the money. To avoid falling for real estate scams, it’s important to do your research and check the legitimacy of the property and the seller.

How to avoid real estate scams

• Do your research and check the legitimacy of the property and the seller.
• Be wary of any property that seems too good to be true or requires payment of fees before the transaction is complete.
• Always use a reputable real estate agent and be cautious when dealing with individuals online.

Final Thoughts

Financial scams come in many different forms and can be perpetrated by individuals or organizations. By being aware of the most common scams and taking steps to protect your personal information, you can avoid falling victim to these fraudulent activities. Remember to always do your research, be cautious when dealing with individuals online, and never provide personal information or send money to someone you do not know.

FAQs