Financial Fraud Is Real—Here’s How to Protect Your…

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Inflation, bear markets, and recessions aren’t the only potential threats you need to protect your money and portfolio from. More money, more chances of becoming a victim of financial fraud – that’s what they say, right?

Nowadays, phishing emails and automated voicemails asking you to extend your car’s warranty are a breeze. Scams are getting bigger and, unfortunately, more credible.

In honor of October, Cybersecurity Awareness Month, here are the financial fraud warning signs to watch out for and tips to know as you grow your wealth and investments.

Why do we fall for financial fraud?

What makes us vulnerable to financial fraud? Why do we trust these messages or promises?

Scams often emphasize an upcoming time limit and urge a person to take action immediately — think messages like “Click here before this offer expires.” These scams cause us to rely on what Samantha Lamas, a behavioral scientist at Morningstar, calls them System 1 thinking.

“It’s the side of our mind that tends to be quicker and rely on rules of thumb and habit to make decisions,” says Lamas. “System 2 tends to be more methodical and thoughtful. While there are many instances where System 1 guides us to the right decisions, it can work against us for particularly tricky scams.”

Creating a sense of urgency is a popular tactic for fraud, says Daniel Mayer, Morningstar’s chief information security officer. “It’s the emotional response they want you to get, so you don’t think, you react.”

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Here are some of his tips:

  • Check where messages, requests, and links are coming from before replying or reacting.
  • Be suspicious if you receive something you didn’t expect.
  • Update your phone and laptop to the latest version. Postponing these updates makes it easier for users to exploit vulnerabilities in the software.

Do I use safe investing websites and apps?

Simplicity, coupled with free time at home due to the onset of the corona pandemic, gave investment apps their big breakthrough. In 2021, over 130 million people used an app to trade and invest. With a robo-advisor, you can even get investment advice from your phone or computer.

These platforms may ask you if you want to simplify your finances by connecting all your financial accounts. When you do this, you often give your password to third parties so they can collect all of your information to give you an overview of your portfolio.

Mayer stresses the importance of thinking about who you give those passwords to. Know your source: Think about who you’re sharing this information with, whether it’s a reputable bank or an app you’ve downloaded onto your phone.

When it comes to passwords overall, Mayer strongly encourages individuals to use unique, strong passwords for their financial accounts. Password reuse increases the likelihood that your accounts could be compromised. For a strong password, use more than 10 characters with lowercase and uppercase letters, numbers and special characters.

Mayer also recommends using a password manager to keep track of your passwords. Most even have a built-in password generator that you can use if you can’t think of one yourself.

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Password managers require users to have a master password. This is a longer password made up of several random words. For example, you would want to use a combo like “blue-bird-sushi-house” which is strong and memorable, as opposed to “iloveharrystyles” which is too easy (and obvious).

5 Financial Fraud Warning Signs to Watch Out For

1) Texts with links. While mobile banking, shopping, and other phone-friendly options eliminate the time (and sometimes hassle) of face-to-face interaction, it makes us more vulnerable to financial fraud. If you receive a text message with a link from a number you don’t recognize and pretending to be your bank or a store with a tracking number, don’t respond. Instead, contact customer service and confirm.

2) Messages asking for a favor: Impersonating someone you report to at work, or even your CEO, is a common tactic used by scammers, Mayer says. Typically, in this type of scam, individuals receive a text message stating, “I’m at a conference, I need to give out some gift cards and I need someone to help me buy some.” Then the individual buys the gift cards, that’s it not really the CEO after all… You know what happens next: you’re on the money.

3) Unexpected money requests on mobile payment services from friends and strangers: I know I sound like a broken record – we’ve been told not to talk to strangers since we were little kids. However, be careful if you also get a request from someone you know. Scammers can easily impersonate profiles on these services by using the same profile picture and a similar username. If you receive a request for emergency purchases or rental money from someone you know, contact them first to avoid financial fraud. And always enable your privacy settings for your transactions in these apps.

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4) Calls to Cancel a Subscription: How many companies go out of their way to give money back? It’s very likely that someone is looking for banking information and wants to start a conversation by offering a financial interest.

5) Finally, phone calls from the CRA. They prefer snail mail or secure messages when they want to start a conversation.

Do you have more questions about growing up? Let’s figure out these financial milestones and hurdles together.

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