5 Financial Scams and How to Avoid Them

5 Financial Scams and How to Avoid Them

medium_3545047810New investors often make easy targets for skilled scam artists, an unfortunate fact given the drive to learn, improve, and make money present in the newly interested in investment. If these scam artists were themselves better at investing, they’d be more inclined to make money through honest means—sadly though, this isn’t the case.

These scam artists are persuasive and good at specifically targeting individuals with information they’d like to hear. They’re masters of audience. But knowledge is power—take a look at these common strategies employed by scammers and protect yourself.

First, there’s the Phantom Riches ploy, which is motivated by a person’s desire to gain wealth. It promises something you want but can’t have in your current situation. Scam artists who employ this tactic offer things that will produce lots of income with little effort. As Jason Hartman always says, if it seems too good to be true, it probably is.

Next, there’s the Source Credibility ploy in which someone builds credibility by claiming to have the necessary titles and experience necessary to convince you. They might claim to be the CEO for a particular company and use their title to assert that they’d never, with such a title, give you bad investment advice.

Many scam artists also use the Social Consensus method of persuasion to convince potential victims. In this case, they lead you to believe that others have followed a similar (and successful) path. Claiming that others got their start with the organization or claiming that large numbers of other people who seem like smart, savvy investors are also involved is used as a form of peer pressure.

You might also hear the Reciprocity tactic, in which a small favor is offered to you in exchange for your bigger favor. For example—if you buy now, you’ll get 50 percent off.

Finally, the Scarcity tactic can be employed by creating a sense of urgency that is unreal and unwarranted. These scammers will claim that something high in demand is in short supply to pressure people into making a hasty investment.

Protecting Yourself

To protect yourself against investments you aren’t comfortable making, begin by educating yourself. Have a base knowledge so that it is easier for you to spot a scam. Think about potential scenarios in which you might respond by saying no and practice your script, especially if you’re uncomfortable with conflict. Don’t be afraid to be assertive and hang up. Get used to asking questions and demanding to see certifications and licenses. Verify them, read reviews, and educate yourself.

(photo credit: B Rosen via photopin cc)

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