Non-traditional Costs Of Financial Fraud
FINRA Investor Education Foundation
What does value investing really mean? Q1 2021 hedge fund letters, conferences and more Some investors might argue value investing means buying stocks trading at a discount to net asset value or book value. This is the sort of value investing Benjamin Graham pioneered in the early 1920s and 1930s. Other investors might argue value Read More
Applied Research & Consulting LLC
- Non-financial costs of fraud (e.g., stress, health problems, etc.) are widespread among victims of financial fraud. Nearly two-thirds (65 percent) report experiencing at least one type of non-financial cost to a serious degree.
- Stress is the most commonly cited non-financial cost, with 50 percent of respondents reporting they had experienced severe stress due to being defrauded. Nearly two in five (38 percent) reported difficulty sleeping, and more than one third (35 percent) reported experiencing depression due to the fraudulent incident.
- Fraud victims who lose larger amounts of money are more likely to experience a greater number of non-financial costs.
- Victims who are confused about the details of the fraud are far more likely to report experiencing non-financial costs to a serious degree.
- Non-financial costs are more common than indirect financial costs. Slightly less than half of respondents (47 percent) report incurring some type of indirect financial cost (e.g., late fees, legal fees, etc.) as a result of fraud.
- Among those who have experienced indirect financial costs, 29 percent estimated the cost to be more than $1,000.
- The most frequently reported types of indirect costs are late fees/interest (25 percent) and fees for bounced checks (23 percent), suggesting that the loss of money due to fraud interfered with the victim’s ability to pay bills and make ends meet.
- Only a minority of respondents (15 percent) report having a great deal of interaction with the perpetrator of the fraud (e.g., communicating many times, filling out paperwork, etc.).
- Victims of financial fraud place a good deal of responsibility on themselves for the incident. Just under half (47 percent) blame themselves for being defrauded, and 61 percent feel that they were defrauded because they were too trusting.
- Financial fraud victims report a variety of negative emotional reactions to the fraudulent incident, with anger being the most common (74 percent), followed by regret (70 percent), feeling victimized (69 percent) and feeling betrayed (68 percent).
Findings In Detail: Fraud Experience
Fraud Victimization in the Survey Sample
Respondents were given a list of 20 scenarios of financial fraud and asked whether they thought they may have been defrauded in any of these ways (the specific types of fraud are discussed separately below). Because cases of fraud are not always clear-cut and victims may be unsure whether they have been defrauded (or whether their loss was due to legitimate reasons), the study included respondents who felt they might have been defrauded as well as those who reported that they definitely had been defrauded.
Overall, three quarters of the sample indicated they had been defrauded by answering “yes” to at least one of the 20 specific types of financial fraud tested. An additional 22 percent did not say “yes” to any of the financial fraud types, but did say “maybe” to at least one. The remaining 3 percent reported that they had lost money in another kind of fraudulent investment. Note that these percentages are not representative of the general public, as respondents who were not self-reported fraud victims were excluded from the survey.
Types of Financial Fraud
Self-reported fraud victims were most likely to say “yes” to having been defrauded by advance fee email scams and lottery scams. They were most likely to say “maybe” to charity-related fraud.
Details of the Fraudulent Incident
For the remainder of the survey, respondents were asked to think about the fraudulent incident they experienced that they considered to be the most serious.
The majority of respondents (60 percent) indicated that the fraudulent incident was fairly recent (within the past 5 years).
The amount of money lost varied considerably, with about a third of respondents (34 percent) who lost less than $500, about the same proportion (35 percent) who lost between $500 – $5,000 and 24 percent who lost $5,000 or more.
Men were more likely to have lost a greater amount of money than women, and respondents with higher incomes ($75K+) were more likely to have lost more than those with lower incomes. There were no substantial differences by age in the amount of money lost in the fraudulent incident.
As far as degree of involvement in the fraud, only a minority of respondents (15 percent) reported having a great deal of interaction with the perpetrator of the fraud (e.g., communicating many times, filling out a great deal of paperwork, etc.). The plurality (46 percent) said they had a moderate level of interaction (e.g., communicating back and forth a few times), and 33 percent reported having very little interaction (e.g., simply responding to the initial call or contact).
Respondents who lost smaller amounts of money were more likely to report having less interaction, while those who lost greater amounts also reported greater levels of interaction. There were no demographic differences in level of personal involvement.
See full PDF below.