Common financial scams and how to avoid them

By Eain Johnson

The modern world has made all kinds of financial transactions much easier to manage, but unfortunately it has also enabled a far greater number of conmen, fraudsters and scam artists.
Although websites and payment providers do their best to make sure that your financial details are secure, we all need to be on our guard against financial scams.

Phishing

One of the most common of all financial scams is the phishing email. This is basically an email asking you to send money, and giving a list of sometimes plausible, sometimes wildly imaginative reasons why you should do so. Some of these are so clearly dodgy that we laugh at them: it seems ridiculous that anyone could fall for such an obvious scam. But in fact, it’s that very overconfidence that can make us vulnerable.

You may not be likely to send your bank account details to a supposed Nigerian prince wanting to outsource his personal treasury, but what about an email from a friend who tells you that they’re on holiday in Europe and have had their credit cards and passport stolen? The immediate impulse is to send them money as they request, but in fact this is an extremely common financial scam.

The chances are that your friend never left the country and is happily at home or at work. It’s so easy to check, but the emotional impact and sense of urgency in these emails is such that some people never do.

Unlikely investments

If someone offers you a great investment deal, the first rule of thumb is that if it sounds too good to be true, then it probably is. This goes for financial brokers who claim to have a foolproof get-rich scheme that you must get in on. Use a reputable independent review site to find the best forex broker, and don’t be taken in by fly-by-night traders making unbeatable offers. A genuine broker will inform you of the risks and won’t promise that any investment is a sure thing, because it never is.

The pyramid scheme

The most insidious variety of financial scam is the one that involves people you know and trust, and that initially seems to be making money for those involved. A group of your friends tell you that they invested $50 each in this scheme, and a month or so later, they got back $100. It’s so simple, they say, and now they’re going to invest $100 each and invite you to join them.

In this case, it isn’t that your friends are out to con you. They’re just innocent victims of a complex scam whereby initial ‘investors’ are given a reasonable profit to win their trust and to get them to recruit further ‘investors’. At some point, however, the people behind the scam will still make off with all the ‘investments’, leaving everyone else completely out of pocket.

The best way to avoid scams like these is to always be on guard. Don’t get complacent or assume that you’re too clever to fall for them. By treading carefully, you should be able to stay safe and solvent.