How to Protect An Aging Mind From Financial Fraud

The behavioral science literature offers some key insights into why we become more susceptible to financial fraud as we age.

The behavioral science literature offers some key insights into why we become more susceptible to financial fraud as we age.

1. Older adults tend to rely more on system 1 thinking That is, fast, automatic and unconscious – and less on System 2 – which leverages fluid intelligence to reason and think through problems deliberately (Peters et al., 2000). Our crystallized intelligence (which comes with knowledge and experience) does increase with age, which compensates for decreases in fluid intelligence. However, crystallized intelligence starts to decline around 70, which leading to an overall reduction in decision-making quality in the later years (Tymula et al., 2013).
2. Older adults are more affected by choice overload They find it more difficult to navigate a proliferation of choice and may lead them to suboptimal decision-making when overwhelmed. Specifically, they find it more challenging to ignore and sift through irrelevant information when placed in a situation to do so (Besedeš et al., 2010).
3. Older adults have reduced numeracy and are less apt at assessing risk Cognitive decline is closely associated with increased difficulty in using reason when evaluating numbers (e.g. about a 1% vs 0.1% risk) (Best & Charness, 2015).

The behavioral science literature suggests that one of the reasons that older populations may be more susceptible within financial decision-making environments is because they are prone to paying close attention to details in the present while ignoring the bigger picture, a phenomenon that is also known as low-level construal’. This predisposition to think about details in the present (see the availability heuristic and salience bias) can increase vulnerability in financial decision-making environments. This is particularly troubling when many fraudulent emails leverage the urgency to ‘act now’. For example, a foreign lottery scam including the message: “Send a deposit of $200 within the next 24 hours to claim your lottery earnings”, brings the present front and center. Biases towards present actions are amplified when the consequences of certain behaviors will be felt much later into the future.

Perhaps then, prompting abstract thinking, or ‘high-level construal’ would promote critical thinking about financial decisions in older populations. Our hypothesis was that incorporating personal financial risk assessment questionnaires into investment decision-making environments would effectively promote abstract thinking, ultimately reducing financial fraud susceptibility amongst older adults (aged 60+).

Our experiment involved 102 North American respondents divided into equally sized younger (18-25) and older (60+) cohorts. The participants were randomly assigned to a treatment or control group. Both groups were shown an email about an investment opportunity, which incorporated many of the common red-flags of fraudulent pitches. After reviewing the email, the respondents assessed the pitch along several dimensions including appeal, willingness to invest, and perceived risk. The intervention for the treatment group was a Personal Financial Risk Assessment, which the respondents completed before viewing and assessing the email.

When comparing the treatment and control groups we found a significant effect of the intervention on susceptibility scores in those aged 60 and over. The control group who did not complete the personal financial risk assessment was much more likely to consider the financial opportunity to be appealing, trustworthy, and they expressed a greater willingness to invest. Furthermore, there was no effect of the intervention on the 18-25-year-old group, suggesting the intervention specifically targeted the cognitive deficits associated with old age.

As the world becomes increasingly digital, and populations age, financial scams may become more common. The more tools we can provide to vulnerable populations to protect themselves from “falling for it”, the fewer victims there will be to face the negative consequences.

Overall, the key things to take away from this article are the following:

• Although people of any age can fall victim to financial fraud, older individuals are at the greatest risk due to changes in cognitive functioning.
• Biases towards “detail-oriented” thinking vs “big-picture thinking” in older populations increase overall susceptibility to financial fraud.
• Interventions, such as personal risk assessments which prompt “big picture thinking” encourages critical thinking, and can, in turn, reduce susceptibility to financial fraud.
• Our findings support existing literature, which demonstrates that older adults strategically change their preferred decision modes from being deliberative to more heuristic-based in order to compensate for cognitive declines in everyday functioning (Mutter and Pliske, 1994; Yates and Patalano, 1999).