"Financially Sophisticated" Boomers Falling For Financial Scams

Aging boomers and their $8.5 trillion in assets are tempting targets for con artists. But is their presumed financial sophistication actually making it more likely they'll be taken to the cleaners?

Early data is not encouraging, unless you work in a boiler room.

A report at the SEC's Senior Summit this week showed that, according to the Los Angeles Times, "fraud victims scored higher on tests of financial literacy than people who had not been victims." The study also found that victims were more likely to be male and college-educated than non-victims.

Now the SEC is concerned that boomer's relatively high education levels are working against them.

How could this be? After a lifetime in which the assets they touched -- housing, stocks -- turned to gold, they're primed for pitches from fraudsters. But boomers may be attributing too much of their asset growth to their own investing skill, making them feel more competent than they are. And while their parents, the "greatest generation," lived through the Depression and remained risk-averse forever after, Boomers have proven all too willing to invest in the next big thing, whether it's Pets.com or a pump-and-dump pink sheet stock. A little bit of knowledge is indeed a dangerous thing.

According to the LAT, the research is calling into question the SEC's assumption that fraud can be combated with basic financial literacy.

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From the Los Angeles Times (may require registration):

Here are the most common investment scam techniques used by financial fraud perpetrators, according to a report by the NASD Investor Education Foundation. They are listed in the order of the frequency of their appearances in undercover telephone transcripts involving financial hustlers and their targets.

• Phantom fixation: Offering the prospect of wealth and riches.

• Scarcity: Making an investment offer seem rare to increase its appeal.

• Source credibility: The con artist claims to be from a known business or other legitimate entity.

• Comparison: Juxtaposing the offered price of the investment with a higher-priced example.

• Friendship: Appearing to be the victim's friend.

• Commitment: The perpetrator tries to get the victim to make a commitment early on, then uses that promise against him later.

• Social consensus: The con man makes it seem like everyone is buying his investment.

• Reciprocity: The con artist will do a small favor for the victim, thus putting pressure on the victim to reciprocate.

• Landscaping: The con man structures the interaction between himself and the victim so that all roads lead to where the perpetrator wants the victim to go.

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