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Would you fall for a scam? Losses from fraud are going up as financial scams become more common

Would you fall for a scam? Losses from fraud are going up as scams become more and more common…and believable

A person using a laptop in front of a purple beam of light.
More and more people are losing money to scams, a figure one Northeastern expert says is a result of more people being on the Internet. Photo by Alyssa Stone/Northeastern University

Recently, a story about a financial columnist losing $50,000 to a scam took the Internet by storm. Many of the comments have a similar refrain: “I would never fall for this.”

But falling for a scam is easier and more common than many imagine, said Nikos Passas, professor of criminology and criminal justice at Northeastern University. Just ask the investors in Theranos or the people harmed in Bernie Madoff’s Ponzi scheme.

More people are losing money to scams than ever before, according to the Federal Trade Commission, which found that reported consumer losses to scams increased by 30% from 2021 to 2022. People lost about $8.8 billion to fraud in 2022, with $3.8 billion lost to investment scams. (Many victims don’t report their losses.)

Passas said a lot of this has to do with people being more online, a trend that increased when COVID-19 hit and a lot of aspects of life went virtual. More people were using the Internet than ever before, including people who were not used to living in a digital age.

“We’re using the Internet much more frequently,” Passas said. “We have a growing pool of victims. Usually, crooks like to hide in the crowds, and here we have much bigger crowds.”

Headshot of Nikos Passas.
Nikos Passas, professor of criminology and criminal justice, said the growing number of people on the Internet means more opportunities for scammers. Photo by Matthew Modoono/Northeastern University

Growing economic difficulties around the globe also means people get desperate under financial pressure and resort to criminal measures, Passas added. And the internet’s global reach allows fraudsters to target people anywhere in the world, creating a broad jurisdiction for these types of crimes.

Technological measures allow for criminals to be anonymous while scamming, making it harder for law enforcement to track them down. Scammers can now mimic phone numbers or find information on their victim that makes the fraud seem much more real.

Scams can also take many different forms. Many people have gotten phishing emails from someone claiming to be their employer or a loved one. But scammers will also use social media to pose as people their victims may know. Many also pose as government officials and get their victims to pay up under the guise of owing back taxes or facing charges. Some get money by posing as a charity or by blackmailing their victim by claiming they have dirt on them.

There’s also online shopping scams where people pay for a product that never comes and lottery and prize scams where fraudsters claim you need to pay before receiving your reward. Online romance scams and fake job listings are also common, getting people to give money to their “lover” or to their new faux employer for the promise of a background check for a job.

The common theme of many of these scams is that they require money upfront. They also often prey on emotions. 

“They can figure you out and they will exploit your fear, your urgency, your stress, your greed, or your sympathy,” Passas said. “They know what you care about. There is so much information about ourselves out there that people will collect this and take advantage of it.”

Many people take the bait when presented with an opportunity they want or a threat that they might face legal consequences if they don’t comply.

“One often overlooked thing is that there is an unconscious wish for something to be true, so our rational mind can be overridden,” said William Sharp, an associate teaching professor in psychology at Northeastern University. “Even though we know something sounds “too good to be true” there is a part of us that wishes it so.”

Older people are especially vulnerable to these scams. The FTC found adults ages 70 to 79 lost more money when scammed, often turning over their savings, pensions and life insurance. But younger adults in their 20s were actually the age group scammed the most. Passas said this shows anyone can be vulnerable, pointing out how many people got scammed by Elizabeth Holmes and Madoff.

“With younger people, it may be different types of things that they are more easily falling for, like a hot tip for an investment or a trip, an award, or things like this,” Passas said. “Because there are so many different types of fraud, if I am a crook, I will study my victims and I will target them with what I think is their vulnerability.”

How do you know if you’re being scammed online? Passas said to look out for unsolicited messages and anything that requires urgency. A call from the IRS that you need to transfer money to pay back taxes now requires some scrutiny. Same with someone offering something too good to be true, like a romance or a cash prize. 

Passas also recommended trying to avoid giving out information that people can use to manipulate and impersonate you. This can range from your Social Security number to information about your family. Another scam red flag is people asking you to pay them in unconventional methods like gift cards or cryptocurrency.

When it comes to email, avoid clicking on strange links and downloading attachments without checking as well, Passas added. Check the email address of the sender if you get an unusual message to make sure it’s coming from a legitimate source.

While it’s also easy to get distracted by flashy scams like someone handing over $50,000 in a shoebox, Passas said scammers can also go after small amounts that add up.

“People do not realize how much that individual victims may lose,” he said. “In many cases, it’s cumulative and very substantial. We’re talking about billions of dollars that are lost annually to scams like this, so keep yourself up to speed.”