9 Common Financial Scams and How to Avoid Them

If you've received a text, email, or phone call with an offer that seems "too good to be true," chances are that it's a scam. With fraudsters employing more sophisticated tactics and tools to steal your money, you'll want to be more watchful than ever.

The sad news is there are greater losses in fraud each year. According to recent data from the FTC (Federal Trade Commission), consumers report losing more than $12.5 billion in fraud, a 25% spike from the year prior.

If you're nervous about being duped into a scam, you have good reason. Let's look at the most common types of scams, what you can do to steer clear of them, and steps to take if you fall victim to one.

Common types of scams

In a nutshell, a scam is essentially a way for a thief to get you to bid farewell to your hard-earned money – or unknowingly get you to offer up your sensitive personal or financial information to commit the scam.

Here are some of the most common types of financial scams:

1. Romance scams

Often, a romance scam starts off as an online romance where the scammer whips up an imaginary tale and fictionalized persona. By playing with your emotions, the bad actor can gain your trust. Once they get you to a vulnerable place, where you are catching feelings for them and believe the relationship is real, they might then try to get you to send them funds or ask to borrow money.

2. Gift card payments

A gift card payment scam works like this: The bad actor poses as a legitimate business or authority. They reach out to you and claim there's an issue with a recent payment.

To fix the supposed problem, they ask that you make a payment with gift cards. Once you've bought the gift cards and provided details like the numbers on the back, you'll find that you were duped – and your money stolen.

3. Impersonator scams

Also known as imposter scams, impersonator scams involve pretending to be a known individual or trusted entity – like a friend, family member, someone from the police department, a government employee, or bank employee.

Often, they'll use scare tactics – for example, if you don't send money, there will be severe legal or financial consequences. Or they might pretend to be a rep from a credit card issuer or financial institution, and say they've run into a problem with your account.

They'll ask you to provide your account information so they can log in and try to remedy the situation. Here's the thing: You should never provide any sensitive personal or financial info to a representative from a financial institution, which includes login info. They should already have it.

Another instance of an imposter scam is the scammer is faking it as a charity organization or non-profit and trying to collect money for a good cause. For example, they might say they're a charity asking for donations to assist victims of a natural disaster. Unfortunately, no such charity exists. Instead, your money goes into the hands of an impersonator.

4. Grandparent scams

Grandparent scams target older folks. Here's how they typically work: They exploit an older adult's concern for a family member. Usually, the bad actor pretends to be the family member or grandchild who is in a state of urgent distress.

For example, they claim to be stranded overseas or in financial or legal hot water. To "rescue" them, you'll need to send financial assistance by wiring money or sending a gift card as soon as possible. By pulling on your heartstrings and creating a sense of urgency, you might comply.

The scammer might glean from the victim or victim's family personal information. This might be through combing through social media mining or buying data from cyber thieves. What's also scary is that they might, with Artificial Intelligence (AI), further deceive victims. This is achieved by creating short audio or video clips that mimic the voices and physical appearance of one's actual relatives.

This particular brand of grandparent scam is more common during the holidays. That's because folks want to spread holiday cheer and generosity and are more prone to opening their wallets. Plus, people are more likely to hear from their relatives during this time of year.

5. Email scams

With an email scam, the bad actors will reach out to you via email. They usually pretend to be a government agency, internet service provider, or well-known, reputable charity or organization.

From there, they'll find a clever way to phish for your sensitive personal or financial information. For example, they might direct you to click and sign in to a bogus website to validate – and unknowingly share – your information with scammers. On the backend, the fraudster tracks keystrokes.

The scammers will then use the valuable information to invade your existing accounts or open new accounts – for their financial benefit.

6. Lottery or sweepstakes winnings scam

You'll be notified that you've won a major prize, such as a lottery or scholarship. With this scam, for you to get the payout, you'll need to pony up taxes or fees first. For example, to receive your prize winnings of $1 million, you'll need to offer mail-in $30 by cash, check, or money order within a given time frame. But guess what? You'll never get your money and you'll be out $30.

7. Work from home and employment

While job-hunting online, you've stumbled across an awesome work-from-home opportunity. Usually, it's a virtual personal assistant job, reshipping or reselling gig or executive assistant job with a lucrative wage.

Once offered the job, you'll be required to purchase equipment or materials before you begin. For example, a new laptop. The scammer might send you a check in an amount that far exceeds the cost of the laptop.

They then reach out telling you they sent too much money. They'll ask you to send them back the difference. You may not have even deposited their check yet or the funds will not fully become available in your account. Ultimately, their check bounces and your funds clear their account before you have time to stop payment.

8. Discounted TV or internet services

A newer scam on the block, you might receive a robocall offering you a heavily discounted rate for phone, TV, or internet services.

For example, half off the regular price – if you act now. There are two ways they can get your money. First is by requesting that you buy a gift card, then give them the numbers on the back of the card to make your payment. If you do so, you'll receive the too-good-to-true promotion.

The other method? They ask that you confirm your payment account info. That way, they can apply the promotion to your account. They'll then use your info to hack your account.

9. USPS text message

Another method a scammer may try to trick you is using text messages. For instance, you might receive a text message from the United States Postal Service (USPS) saying that there's a package en route to you. However, there's an issue, such as unpaid postage, missed delivery or you need to update your shipping preferences. The text message will prompt you to click a link to address the problem.

However, the link leads you to input your credit card, your account login details, or personal or financial information, which will be used by the scammer.

How to avoid a scam

Ideally, you'll want to avoid falling prey to a scam, which can cost you money, time, or stress. Here are steps you can take to avoid one:

• Be cautious when an unknown number contacts you. If you're receiving calls from an unknown number, exercise caution. If they leave a voicemail, ask someone you know or trust for their opinion. If they say they're from a bank, credit card company, or IRS, chances are these institutions won't contact you via phone. Call the entity directly and inquire.

• Don't click unknown links. Avoid clicking on unknown links. If you end up clicking on one and it directs you to a website, check to see if there's a padlock icon in the browser. When there's a padlock icon next to the site name, this means that info sent between your website and browser is sent securely. That info won't be intercepted and read by any outside parties.

• Do a Google search for the company and see what pops up. Also, look for odd design elements, typos or language that seems off on the website. These are telltale signs you're looking at a bogus link.

• Research companies before taking any action. Do your homework if you get an unsolicited call, text, or email from a company you've never heard of before. See if they're legitimate and if you've stumbled across any complaints. Also, check the website from your own research to see if it's legit.

• Look for suspicious payment requirements. Requests for gift cards, money orders, and a wire transfer service like Western Union or MoneyGram, could alert you that someone is trying to scam you. That's because these payment methods are hard to track or get the funds back. Once the money leaves your hands, figuring out who the true recipient is can be hard – and the bad actor has your money.

• It's too good to be true. In many of the scams identified above, if something seems too good to be true, it usually is. Don't be quick to give them your personal information or dole out cash.

• Block unwanted calls. If you get a barrage of unwanted calls or messages, block them and report spam.

• Hit the pause button. If you're feeling rushed or pulled by emotion, stop, hit the pause button, and take a breather. Talk to someone you know or trust before taking any action.

Dos and Don'ts

Now, let's look at some dos and don'ts that can protect you from falling victim to a scam:

Don't

• Send money to someone you don't know or have never met
• Click on unknown links, answer calls or open emails from strangers
• Make payments or share personal information to unknown parties
• Feel like you must stay on the phone if you start feeling uncomfortable
• Feel pressured to make decisions on the fly

Do

• Block unwanted calls and text messages
• Avoid making immediate payment requests with a gift card, payment app, a wire transfer service like Western Union or MoneyGram or cryptocurrency
• If in doubt, talk to someone you trust about a call, text, or phone call that seems suspicious

What to do if you fall victim to a scam

If you think you were a victim of a scammer, here are steps you can take:

• Report the scam and scammer. You can do this in a number of ways. For example, you can file a report to the FTC or the Better Business Bureau (BBB). You can also file a complaint through the FBI's Internet Crime Center by visiting ic3.gov. You'll also want to consider filing a police report. If you suspect you are a victim of a scam, try to file a report as soon as possible.

• See if you can get your money back. If you paid a scammer or sent payment with a credit card or wire transfer, contact the bank, a wire transfer service or credit card issuer. If it was an unauthorized purchase on your bank account, reach out to the issuer and tell them what happened. If you paid with a gift card, reach out to the card issuer and request a refund. It might not always be possible, but it doesn't hurt to contact the bank, payment platform, or company and do what you can to get your money back.

• Scan your devices for malware. If you suspect you were a victim of a phishing scam in which the bad actors obtained your personal or financial information, scan your phone, computer, tablet, or other devices for malware. Malware is short for "malicious software" and is designed with the intent to contaminate or harm your computer, tablet, phone, or other electronic device.

• Change your passwords. If you suspect you gave a bad actor your username and password, change your password. You'll want the password to be unique and ideally have a mix of letters and numbers, uppercase and lowercase letters, and special characters.

• Protect your credit. If you feel like scammers got a hold of personal or financial information that they could potentially use to open lines of credit or a loan in your name, protect your credit by putting a credit freeze with the three main credit bureaus. A freeze keeps people from getting into your credit report. While a freeze is in place, nobody can open a new credit account. You can also place an initial fraud alert, which usually lasts a year. That way, businesses will alert you before opening a new account in your name.

• Practice general security measures. Keep your devices up to date with the latest security updates, and enable multi-factor authentication. When you opt into multi-factor authentication for an app, service, or platform, you'll need to provide at least two ways to verify that it's you: a fingerprint and a passcode.

Stay alert and be proactive

With scams on the rise, it's best to be on the lookout for them. You can take preventative steps by understanding the telltale signs of one, exercising plenty of caution, and following the dos and don'ts. Doing so can keep your wallets and sensitive personal information safe.

About the author

A personal finance writer for over 8 years, Jackie Lam covers money management, lending, insurance, investing, and banking, and personal stories. An AFC® accredited financial coach, she is passionate about helping freelance creatives design money systems on irregular income, gain greater awareness of their money narratives, and overcome mental and emotional blocks.

Her work has appeared in publications such as Bankrate, Time's NextAdvisor, CNET, Forbes, Salon.com, and BuzzFeed. She is the 2022 recipient of Money Management International's Financial Literacy and Education in Communities (FLEC) Award, and a two-time Plutus Awards nominee for Best Freelancer in Personal Finance Media. She lives in Los Angeles where she spends her free time swimming, drumming, and daydreaming about stickers.

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