By Kean Seng Lim
What causes the public to fall prey to scammers? Learn more of few common ones causing this serious disadvantage.
More often than not, we have read articles after articles in the media about people young and old, falling prey to scammers. In the first half of this year, there are so many reports of such incidents, yet people never seem to learn from it.
The saddest group of victims are those that are about to or have already retired. These people may no longer have any more active income and as such any loss to scams can be devastating. Their entire life may be ruined due to this.
To protect ourselves and loved ones better, let us have a look at the potential causes of falling prey to scams.
#1. Greed
Everyone wants to always have more than what they currently have. Who can blame them? With the savings rate below 1% per annum, it is extremely difficult for most people to be able to sustain their livelihood.
Hence, we get attracted to products which offer a higher rate of return. Do note that such products may not necessarily be scams. A detailed understanding of such products needs to be investigated and relevant checks made before delving into such products.
As licensed financial planners, we can help our clients by doing the due diligence on the products for them. We can then, depending on the clients’ risk appetite, provide unbiased feedback on such products. It is then up to the client to decide whether to take up such products or not.
#2. Fear of not having enough
Is this not the same as greed? No, this is where there is a fear that the amount we have accumulated for our retirement seems inadequate to fund our retirement life. Therefore, we try to find ways to make up for the anticipated deficits in the funds required in retirement. If there is adequate time for this deficit to be overcome, it may not be cause for concern.
But if one is already nearing retirement, the deficit may be insurmountable. This is when either unnecessary risk is taken to try to overcome the deficit, or an unregulated/unapproved investment which may lead to potential losses instead of gains can be undertaken by the client.
A better way to overcome this fear is to delay retirement until the desired retirement amount is desired. The deferment of retirement may either be via the existing employer agreeing to re-employ the employee for an extended period of time, or by the employee finding employment opportunities elsewhere.
#3. Fear of Missing Out
More commonly known as FOMO, this happens when there is a rush to be part of a new product that has been introduced and everyone is jumping on the bandwagon. The fear of being left out can sometimes make one blind to the red flags that tells you that this product may not be genuine.
Do not allow this fear to cloud your decision making. I always advocate the maxim of “If it is meant to be, it will be. If it is not meant to be, just let it be”. In other words, it means that there will always be another opportunity for you.
#4. You only live once
Similar to the above FOMO, the You Only Live Once (YOLO) term seems to imply that we must enjoy ourselves while we can. But doing so does not mean we can just jump into whatever comes along.
Do your own proper due diligence before parting with your hard-earned money. You do not want to regret later if things do not go the way it said it would.
#5. Financial Independence, Retire Early
This is a recent phenomenon more commonly known as F.I.R.E. The aim is to be able to accumulate as quickly as possible the retirement pot so that one can achieve financial independence and then retire early. In the quest for Financial Independence, one needs to grow one investment assets as quickly as possible. Just being able to put aside more than 50% of your income is not going to do much, if the monies are not growing quickly too.
Hence, one can be enticed to invest in dubious schemes that promises high returns over the shortest time frame. If no due diligence is done to verify the legitimacy of such schemes, the possibility of being scammed rises tremendously.
#6. Financially Illiterate
Unfortunately, this is currently the most prevalent cause of people falling for a scam. Financial literacy is a subject that has been misunderstood. Some equate financial literacy to the ability to make decisions that require logical thinking, while some relate it to the ability to decide how to invest to make lots of money.
Being financially illiterate makes one act irrationally especially with couples with the fear of missing out on an opportunity.
#7. Keeping up with the Joneses
This is definitely something we should avoid at all costs. It is not a scam, but it is something that will definitely affect one’s financial resources.
Why is there a need to have everything your neighbours have? It does not make sense financially, unless you have so much money it does not impact you at all. But will you really appreciate and enjoy these items? Or will there comes a time when these will be discarded and replaced with the new things your neighbours have bought?
Think carefully and understand the benefits to you if you used your money more beneficially. Do not fall into the category of “We buy things we don't need, with money we don't have, to impress people we don't like – Dave Ramsey”. As a result of this, we may end up selling things we really need in order to be able to continue this “keeping up with the Joneses”.
Conclusion
In essence, a combination of psychological impulses and insufficient financial literacy creates an environment where scams can flourish. Addressing these issues through education and cautious financial planning is crucial to reducing the incidence of scams.
Have you ever encountered a scam before? Share with us below!
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