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

Inflation, bear markets, and recessions aren’t the only potential threats from which you need to protect your money and portfolio. More money, more chances you may be the victim of a financial scam—that’s how that saying goes, right?

These days, phishing emails and robotic voice mails asking you to renew your car’s extended warranty are child’s play. Scams are getting bigger and, unfortunately, more believable.

In honor of October being Cybersecurity Awareness Month, here are the financial fraud red flags to look out for and tips to know as you grow your wealth and investments.

Why Do We Fall for Financial Fraud Scams?

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

Scams often emphasize an impending time limit, urging an individual to act immediately—think messaging like “Click here before this offer expires.” These scams prompt us to depend on what Samantha Lamas, a behavioral researcher at Morningstar, refers to as System 1 Thinking.

“This is the side of our mind that tends to be faster and rely on rules of thumb and habits when making decisions,” Lamas says. “System 2 tends to be more methodical and thoughtful. Although there are plenty of instances where System 1 leads us to the right decisions, it can work against us when it comes to especially tricky scams.”

Creating a sense of urgency is a popular tactic for scams, says Morningstar’s chief information security officer Daniel Mayer. “It’s the emotional response they want to get from you so that you’re not thinking, you’re reacting.”

Here are some of his tips:

• Verify where messages, requests, and links are coming from before you respond or react.
• Be suspicious when receiving something you didn’t expect.
• Update your phone and laptop to the latest version. Putting off these updates makes it easier for people to exploit the vulnerabilities in the software.

Am I Using Safe Investing Websites and Apps?

Simplicity, paired with free time at home brought on by the beginning of the coronavirus pandemic, gave investment apps their big break. In 2021, over 130 million people used an app to trade and invest. You can even get investment advice from your phone or computer with a robo-advisor.

These platforms may ask if you want to simplify your finances by connecting all your financial accounts. When you do this, oftentimes you’re giving a third party your password so that it can gather all your information to give you the big picture of your portfolio.

Mayer emphasizes the importance of thinking about whom you’re giving these passwords to. Know your source: Consider with whom you’re sharing this information, whether it’s a reputable bank or an app you’ve downloaded on your phone.

When it comes to passwords overall, Mayer highly encourages individuals to use unique, strong passwords for their financial accounts. Reusing passwords increases the chances that your accounts could be compromised. For a strong password, use 10-plus characters with lowercase and uppercase letters, numbers, and special characters.

Mayer also suggests 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 on your own.

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

5 Financial Fraud Red Flags to Look Out For

1) Texts with links. While mobile banking, shopping, and other phone-friendly options eliminate the time (and sometimes effort) of in-person interaction, it does make us more vulnerable to financial fraud. If you receive a text message with a link from a number you don’t recognize claiming to be your bank or a store with a tracking number, do not engage with it. Instead, contact customer service and confirm.

2) Messages asking for a favour: Posing as somebody you report to at work, or even your CEO, is a common tactic used by scammers, says Mayer. Typically, in this type of scam, individuals will receive a text message along the lines of “I’m at a conference, I need to hand out some gift cards, and I need somebody to help me buy some.” Then, the individual purchases the gift cards, it wasn’t really the CEO after all … you know what happens next: They’re out 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, you should be wary if you receive a request from someone you know, too. Scammers can impersonate profiles easily on these services by using the same profile picture and a similar username. If you get a request for emergency groceries or rent money from someone you know, reach out to them first to avoid financial fraud. And always enable your privacy settings for your transactions on these apps.

4) Calls asking whether you'd like to cancel a subscription: How many companies go out of their way to give back money? It's very likely someone looking for banking information and they want to get a conversation started by offering a financial interest.

5) Last, but not least: phone calls from the CRA. They prefer snail mail or a secure messages if they want to start a conversation.

Have more questions about adulting? Let’s figure out these financial milestones and hurdles together.