Scams with the highest likelihood of engaging and victimizing consumers involve online and social media fraud—outpacing telephone, mail and email swindles, according to new research from the Finra Investor Education Foundation released today.

Individuals who are socially isolated like seniors or who have lower financial literacy levels are more likely to lose their money to a fraudster, according to the new 24-page report, "Exposed to Scams: What Separates Victims from Non-Victims.” The study was issued in conjunction with the BBB Institute for Marketplace Trust and the Stanford Center on Longevity in recognition of World Investor Week, which starts today.

"Despite the enormous personal and financial costs of fraud victimization, few studies have explored the process of fraud victimization and the factors associated with losing money," Finra Foundation President Gerri Walsh said.

"Our goal is to better understand the conditions under which scam targets do not become victims in order to develop more focused and effective public education tools and strategies to protect consumers,” Walsh added.

Researchers surveyed more than 1,400 Americans and Canadians who were targeted by swindlers and reported the fraud to the BBB online scam tracker.
Nearly half (47%) of consumers did not engage with the fraudster and were not victimized. Thirty percent engaged but did not lose money, while 23% engaged and ultimately lost money and in some cases significant amounts of money, the survey found.

“The type of scam and the method by which the respondents were exposed to the offer were highly associated with engaging and losing money. Specifically, scams involving online purchases correlated with the highest levels of engagement and victimization,” according to the survey.

The survey provides key insights into what attributes made consumers most vulnerable and which types of fraud were most successful:

  • When phone and email were used by scammers to target consumers, relatively few consumers engaged with the scammer or lost money. However, when exposed to a scam on social media, 91% engaged and 53% lost money. Similarly, 81% of consumers who were exposed to a fraud via a website said they engaged and 50% lost money.
  • Consumers were more likely to be victimized if they did not have anyone to discuss the offer with. Consequently, those who engaged scammers and lost money were less likely to be married and more likely to be widowed or divorced. Generally, those who engaged, and those who lost money, reported significantly higher feelings of loneliness. Social isolation appears to play a significant role in fraud victimization.
  • The likelihood of victimization for this sample is greater for individuals who are under financial strain, are younger adults or have low levels of financial literacy, the survey found.
  • The research showed that 51% of people who reported a third-party intervention were able to avoid losing money. Cashiers, bank tellers, employees of wire transfer services and other financial services companies where consumers were about to send money to a scammer, served as an important, effective last line of defense.
  • Nearly half of those surveyed said the news media was their primary source of information about scams. Word of mouth was the next best form of protection and awareness.
  • Prior knowledge of fraud helps decrease the chances of victimization, the survey found. One-third of consumers who were targeted by a scammer, but did not engage, said they already knew about the specific type of scam. In addition, consumers who understood the tactics and behaviors of scammers did not engage with the fraudsters.

"The path to victimization begins with engagement," Walsh added. "However, we now know that there are a number of steps consumers can take to protect themselves ahead of time, as well as in the moment, such as talking to people who have no stake in the outcome and doing additional research before sending any money or sharing personally identifiable information."

Approximately one in ten U.S. adults are victims of fraud each year and self-reported fraud loss complaints to the Federal Trade Commission’s (FTC) Consumer Sentinel Network increased by about 34 percent from 2017 to 2018. In fact, the FTC received more than 372,000 fraud complaints with more than $1.5 billion in direct losses in 2018, and another 1.1 million fraud complaints with no reported losses, the agency reported earlier this year.