Financial fraud is a growing threat, with Americans losing more than an estimated $47 billion to scams in 2024 alone. While anyone can fall prey to identity theft and other fraud, research suggests certain factors can greatly heighten one’s vulnerability.
“The two variables that I’ve been finding that are more consistently significant across different models, across different populations … are loneliness and financial fragility.” Marti DeLiema, a fraud researcher and professor at the University of Minnesota, Twin Cities, said in a recent Financial Industry Regulatory Authority (FINRA) roundtable.
The combination of these characteristics creates psychological and economic vulnerabilities that fraudsters can expertly exploit.
Key Takeaways
- Social isolation increases one’s vulnerability to fraud, as lonely individuals are more susceptible to relationship-based scams and lack third parties who could help identify warning signs.
- Financial fragility creates cognitive and emotional stress that can impair rational decision-making, leading individuals to take financial risks they would otherwise avoid.
The Loneliness Factor: How Social Isolation Increases Vulnerability
Loneliness transforms the way people assess potential dangers. For example, studies suggest that older adults who are socially isolated have a far higher risk of losing money to fraud than those with good social connections. That’s because loneliness can trigger a deep emotional need for companionship that scammers put to use in romance, pig-butchering, and affinity frauds. In addition, the social isolation also means that friends and family members who could provide guidance and challenge dubious financial offers aren’t around.
“If you don’t have someone to talk to and you’ve got a scammer in your ear with you fully engaged, really you need that outside person who hasn’t been drawn into the ether to talk you back out of it,” said Emma Fletcher, a senior data researcher with the U.S. Federal Trade Commission.
Neurological research helps explain this vulnerability, indicating that the experience of prolonged loneliness causes functional changes in parts of the brain that play a vital role in decision-making and assessing threats.
Warning
One clear conclusion from the massive volume of research on this topic is not to scam yourself by thinking you’re too savvy to fall prey to con artists. Those young and old, rich and poor, financially expert and less knowledgeable, trusting and cynical have all been found to be at a greater than average risk for financial fraud.
Financial Fragility: When Economic Instability Leads to Poor Decisions
Financial fragility—defined as the inability to cover an unexpected $400 expense without borrowing—affects an estimated 37% of American households. This precarity creates a distinct vulnerability to fraud. For example, financially fragile individuals have significantly higher rates of “scarcity thinking.” This is what experts say happens when immediate financial needs crowd out longer-term considerations, potentially leading those facing financial difficulties to be more likely to respond, for instance, to get-rich-quick schemes or fraudulent offers promising debt relief.
In addition, different studies have shown that it exacts a cognitive tax that makes individuals more susceptible to high-risk/high-reward propositions and less likely to thoroughly investigate investment opportunities. Other studies suggest financial stress impairs the prefrontal cortical functions needed to detect inconsistencies and red flags, such as those found in fraudulent schemes.
When Both Factors Combine
Given this evidence, those facing both loneliness and financial fragility face amplified risks of falling victim to fraud.
Fraudsters have developed sophisticated methods to identify and exploit those with these vulnerabilities. Analysis of fraud operations by the FBI Financial Crimes Section revealed that scammers actively screen for these traits through initial interactions, with many fraud scripts specifically designed to identify lonely and financially stressed individuals.
Prevention strategies have to address both these dimensions. Community-based programs that combine opportunities for social connection with financial and digital literacy education have shown the most promise.
The Bottom Line
Research indicates that people who live in social isolation or struggle financially are more susceptible to dubious financial schemes, given their need for companionship and money, respectively.
While studies have shown that education about online fraud and finances can help, researchers are concerned that the results of such programs are limited. “We don’t think that these effects last very long,” DeLiema said. “You have to re-up.”
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