4 Mistakes That Make Gen Z Big Victims of Investment Fraud
Written by
Josephine Nesbit
Edited by
Cory Dudak
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Generation Z, or those born between 1997 and 2012, grew up using the internet and social media. Although Gen Zers are a digitally savvy generation, they are also more likely to fall victim to investment fraud.
“Gen Z’s trust of and reliance on technology puts them at higher risk for financial, identity and cyber crimes,” said Jim Van Dyke, senior principal of innovation at TransUnion. “This has made them a favorite target of scammers, who are increasingly able to carry out sophisticated and carefully planned fraud schemes that are difficult to detect.”
In a recent survey conducted by GOBankingRates, 31.16% of respondents between the ages of 18 and 24 claimed to have been the victims of identity theft, a financial scam or financial fraud. Of those who were the victims of financial fraud, 14.29% of respondents aged 18-24 experienced investment fraud.
According to the U.S. Securities and Exchange Commission, investment fraud comes in many forms and is often related to cryptocurrency, pyramid schemes, real estate investments, impersonation schemes, internet and social media fraud, high-yield investment programs and more. Investments were also one of the top frauds reported to the Federal Trade Commission in 2023, with reported losses reaching $4.6 billion.
So why is Gen Z more vulnerable to investment fraud? Here’s what experts have to say.
More Exposure to Scams
Many experts say scams are targeted at the younger generation because they spend more time online. A 2022 Morning Consult survey found that more than half of Gen Zers spend four or more hours on social media every single day.
“They are more likely to be exposed to scams as the majority come through digital channels (email, text, and social media),” said Al Pascual, CEO and Co-Founder of Scamnetic, an application that helps consumers detect scams in real-time.
Not as Much Experience as Older Generations
Because of Gen Z’s inexperience with more sophisticated scams, they may not be able to detect them. “This is an important factor because older consumers have been taught that these risks exist with much clearer examples of how to detect a scam, as such they are more likely to be on the lookout for those signs even if they are harder to spot nowadays,” Pascual explained, citing the rise of cryptocurrency and online investments.
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“They may be more inclined to believe in digital channel investment opportunities given the impression that they made on them before they were old enough to be sophisticated investors themselves,” he added.
More Likely To Take Risks With Investments
When compared to older generations, Gen Z is more likely to invest and take risks with their investments.
“Other generations, especially millennials, grew up during the financial crisis and tend to play things safe,” said Robert Persichitte, financial planner at Delagify Financial and an affiliate professor at MSU Denver. Persichitte is also a Certified Public Accountant (CPA), Certified Financial Planner (CFP) and a Certified Fraud Examiner (CFE) professional. “Gen Z is more comfortable with financial risks and often will do less due diligence before investing.”
Unregulated Investment Choices
Another mistake that younger adults tend to make is making unregulated investment choices. According to Persichitte, the SEC and state protections do not cover most digital assets, such as cryptocurrencies, DOAs and NFTs. Sophisticated, well-funded scammers will often use tricks to get money, such as “pump and dump” schemes, spoofing, churning, front-running and painting tape.
“Through many years of painful investigations and people becoming victims, regulated markets figured out how to prevent these activities. In the U.S., there are strong protections against this type of behavior regarding regulated assets like stocks and bonds,” Persichitte explained. “Gen Z is willingly giving those protections up.”
How To Protect Yourself From Becoming a Victim of Investment Fraud
According to Van Dyke, protecting Gen Z consumers will involve a shared effort between individuals and service providers. “Younger consumers have greater expectations for companies to help protect them from cyber threats,” he said. “Given their embrace of new technology, service providers should look for ways to embed security into their digital experience and make it convenient for Gen Z consumers to take advantage of it.
Meanwhile, you can still invest while remaining safe online. Follow these tips:
- Don’t invest based on social media trends. According to Pascual, there are regulations about what can be said or advertised about investments, but enforcement is difficult for regulators. “It’s basically the Wild West and there’s a very good chance that any opportunity being promoted on social media or on messaging services like Telegram are bogus,” Pascual stated.
- Be wary of reviews or testimonials. There’s a possibility that online profiles were compromised and used to promote a fake investment, Pascual said, even if they come from people you know.
- Do your research. As always, do your research using trusted, well-established sources or consult an investment advisor. Pascual noted that you may even be able to find one through your employer’s investment or retirement plan.
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