7 Tips on How to Avoid Financial Scams

A person who is gullible will pay for it over a lifetime.

gull•ible also gull•able \ˈgə-lə-bəl\ adj

1818 : easily duped or cheated — gull•ibil•i•ty \ˌgə-lə-ˈbi-lə-tē\ n — gull•ibly \ˈgə-lə-blē\ adv

Merriam-Webster, I. (2003). Merriam-Webster’s collegiate dictionary. Includes index. (Eleventh ed.). Springfield, Mass.: Merriam-Webster, Inc.

I don’t endorse negative thinking.  I do, however, support critical thinking.  Critical thinking involves enough negativity to say – “prove it,” “I don’t understand,” or “that doesn’t make sense.”  When it comes to financial matters, too many people want to believe something is true so they stop thinking critically.  Instead, it is important you verify financial advice.

How to Verify Financial Advice

1. Go to the original source.

   Financial people love to throw out stats.  A common example is that people on average spend 12-18% more with credit cards.  Is that true? Well, to really verify that statistic, you would want to read the report for yourself.  Usually reports have a lot of additional information that really sheds light on one random fact.  If you are thinking about doing business with a company online, check with the Better Business Bureau to see their rating.

2. Watch for misleading language and understand the process.

   Some financial claims are not the result of cause and effect relationships.  There are many financial products that claim to be the solution to all your financial woes.  There are some basic financial concepts that are impossible to work around – how do you get out of debt? With more money.  Be especially cautious when dealing with credit card repair firms as they are known to have deceptive practices.

3. Be skeptical and use common sense.

   Ever heard anyone say – “If it sounds too good to be true, it probably is?”  Yes, me too.  I think that phrase is repeated so frequently because so many people continue to violate the proverb.  Focus on what a person or organization says they are going to do.  Is that really possible?  How is that going to happen?  Do they ask you just to trust them?  Are they leery to explain the process to you?

4. Make choices based on your situation.

   There is no one-size-fits-all personal finance advice.  Your situation is unique.  This is why it is important to have a personalized investing plan.  In addition, you should personalize every aspect of your financial plan.  You have unique goals, preferences, and values.  Manage your money accordingly.  For some reason, most people like to outsource important financial decisions.  They seek out a ‘financial guru’ and then give her a blank check.  When I’ve tried to tell people the ‘best way’ to do things I’ve found that the ‘best way’ differs according to their need.  Thus, your best personal finance software might be different than someone else’s because you have different needs.

5. Get a second opinion.

   Ask a trusted friend what they think about the offer or opportunity.  Though they might not be a financial expert, their advice may be invaluable.  Also, many Christian finance bloggers are willing to help readers with their questions.  As an example, ChistianPF has a forum where you can get some great financial advice.  The company or individual’s claims about themselves doesn’t tell you want is really going on.  However, if a third party (who doesn’t have a financial relationship with the company) vouches for them, you can more confidently assume everything is legit.

6. Trust your gut.

   Always avoid something that just doesn’t feel right.  The reason for this is twofold.  First, because it is probably not legitimate.  Second, if it turns out to be illegitimate, you will really beat yourself up and say, “I should have known better.” Save yourself the mental anguish by doing what you know. Some platforms are especially susceptible to scams.  For example, the internet and scams are becoming too closely connected.  I was recently discussing an online business transaction with someone, and at the end, I opted out.  The only reason I could give is that it just doesn’t feel right.  The other individual was offended that I couldn’t cite a specific reason, but I still feel like it was the right choice.

7. Avoid single product financial advisors.

   How can a financial advisor give you good advice if they are paid only if you take their advice?  In other words, they have everything to gain from making you think their product is the best.  When dealing with a mortgage foreclosure or loan modification, get outside assistance as the bank has everything to gain by giving you faulty advice.  You should just avoid financial advisors who push a single product.  That’s why I fired my financial advisor.  He would only promote products that helped him financially.  Too many people consult a bankruptcy lawyer when they are considering the possibility of a bankruptcy as a Christian.  You should visit a Pastor or study about the Bible and bankruptcy because a bankruptcy lawyer is definitely going to encourage you to declare bankruptcy.

What other tips do you have to help avoid financial scams?  Do you have a story that you think could help others avoid being scammed?