6 Reasons Smart People Fall for Scams

Better Investing

What's Hot

2 Types of Black Marks Might Vanish From Your Credit File SoonBorrow

6 Ways the Obamacare Overhaul Might Impact Your WalletInsurance

7 Dumb and Costly Moves Homebuyers MakeBorrow

This Free Software Brings Old Laptops Back to LifeMore

Obamacare Replacement Plan Gets ‘F’ Rating from Consumer ReportsFamily

Beware These 12 Common Money MistakesCredit & Debt

21 Restaurants Offering Free Food Right NowSaving Money

17 Ways to Have More Fun for Less MoneySave

House Hunters: Beware of These 6 Mortgage MistakesBorrow

30 Household Uses for Baby OilSave

25 Ways to Spend Less on FoodMore

Nearly Half of Heart-Related Deaths Linked to These 10 Foods and IngredientsFamily

5 Surprising Benefits of Exercising Outdoors in WinterFamily

10 Ways to Save When You’re Making Minimum WageSave

Boost Your Credit Score Fast With These 7 MovesCredit & Debt

7 Painless Ways to Pay Off Your Mortgage Years EarlierBorrow

The Most Sinful City in the U.S. Is … (Hint: It’s Not Vegas)Family

The True Cost of Bad CreditCredit & Debt

10 Companies With the Best 401(k) PlansGrow

This Scam Now Tops ID Theft as the No. 2 Consumer ComplaintFamily

6 Stores With Awesome Reward ProgramsFamily

6 Ways to Save More at Lowe’s and The Home DepotSave

6 Healthful Treats for Your DogFamily

New Study Ranks the Best States in the U.S.Family

Thousands of Millionaires Moving to 1 Country — and Leaving AnotherGrow

Strapped for College Costs? How to Get the Most From FAFSABorrow

6 Overlooked Ways to Save at Chick-fil-AFamily

Ask Stacy: What’s the Fastest Way to Pay Off My Mortgage?Borrow

Where to Sell Your Stuff for Top DollarAround The House

8 Ways to Get a Good Price on a Shiny New AutoCars

Ask Stacy: How Do I Start Over?Credit & Debt

Secret Cell Plans: Savings Verizon, AT&T, T-Mobile and Sprint Don’t Want You to Know AboutFamily

30 Awesome Things to Do in RetirementCollege

14 Super Smart Ways to Save on TravelSave

The Rich Prefer Modest Cars — Should You Join Them?Cars

You’ll Soon Pay More to Shop at CostcoSave

10 Ways to Save When Your Teen Starts DrivingFamily

Many victims, particularly those of investment fraud, are educated, wealthy, and financially literate. Find out why even smart people fall for dumb traps and how you can avoid being an easy target.

Think it’s just the uneducated or the elderly who fall for Ponzi schemes and deceptive infomercials? Think again. Many victims, particularly those of investment fraud, are educated, wealthy, and financially literate, according to an AARP Foundation study.

Consider the case of Bernard Madoff, whose notorious investment scandal fooled thousands of individuals, including celebrities (Steven Spielberg), financial institutions (HSBC), and schools (New York University).

How exactly does this happen? In this video, Money Talks News founder Stacy Johnson talks to psychology professor Gene Cash about the reasons we fall for scams. After the video, read on for more reasons why smart people do dumb things.

Here are some more factors that contribute to our poor decisions…

1. People aren’t always rational

Every person, at one point in his or her life, has made a quick, irrational decision. Most of us have fallen for the occasional April Fool’s joke or Internet hoax – it’s a part of human nature. In his book, “Who Is Rational? Studies of Individual Differences in Reasoning,” writer Keith Stanovich explains irrational decisions derive from impulsive, non-reflective cognitive styles, often driven by emotion. This is why some individuals are inclined to send money to the desperate student stuck in Europe; he simply needs some cash to get back to America, where he’ll be safe.

2. We’re attracted to financial gain

Irrational decisions are driven by emotion, and our feelings, of course, are heightened when we see something we can benefit from financially. A promise for a $100,000 reward is quite appealing, especially to the father who just lost his job. In recent years, scam artists have taken advantage of America’s struggling economy, enticing consumers with everything from fake deals for renters to get-rich-quick schemes.

Here’s a hint: If something seems too good to be true, it probably is. Take that as your first signal to do some investigating.

3. We’re more vulnerable when we think we’re an expert

According to a study by the University of Exeter, individuals are more vulnerable to a scam if they are knowledgeable about the scam’s subject. For example, lottery ticket buyers are more likely to fall for lottery or sweepstakes scams, while investors are most susceptible to investment fraud. When individuals view themselves as an expert, they’re more likely to let their guard down.

4. People don’t like to back down from a long-term commitment

Once a victim starts spending money, it’s difficult to stop. Many people worry their time and investments will go to waste if they don’t follow through with the process. A consumer is promised to feel healthier with those herbal pills, or guaranteed to look younger with that wrinkle cream – that’s after he or she has paid monthly installments and used the product for at least two years.

5. We have a tendency to trust authority

Many of us have an obligation to obey authorities, and therefore, we trust them. As a result, scam artists send us fraudulent emails that appear to be from trusted organizations, such as banks and loan companies. In a common scam, consumers receive emails that appear to be from the IRS; they are asked to provide personal information in return for a tax refund they haven’t yet claimed. Scam artists will also pose as employees from your water company, insisting you need to pay for a water test in your home.

If you’re unsure if you’re dealing with a legitimate source, look up the contact info of the company or organization (even if a number is provided in the literature you have in your hand), call the number you find, and ask questions to see if all the facts match up. If a scam artist appears at your door, always ask to see identification – and don’t hesitate to turn him away if that quick flash of a badge seems suspicious.

6. Scare tactics, well, scare us

Many scams require that we act fast, or we’ll lose everything we have. In a scheme reported in September, scam artists told people they kidnapped a loved one and would hurt or kill that person unless they were paid. In this situation, victims are made to feel helpless, so they hand over any money they have.

Stacy Johnson

It's not the usual blah, blah, blah

I know... every site you visit wants you to subscribe to their newsletter. But our news and advice is actually worth reading! For 25 years, I've been making people richer without making their eyes glaze over. You'll be glad you did. I guarantee it!


Read Next: Considering a Fixer-Upper? 15 Ways to Avoid a Money Pit

Check Out Our Hottest Deals!

We're always adding new deals and coupons that'll save you big bucks. See the deals to the right and hundreds more in our Deals section.

Click here to explore 1,978 more deals!