Improving fraud measurement
Much of my research at the Stanford Center on Longevity focuses on measuring the impact of fraud in the United States. The ultimate goal is to improve fraud prevalence and cost estimates in addition to identifying what groups are most at risk. To address the lack of standardization in how fraud is defined, the Stanford Center on Longevity and the FINRA Investor Education Foundation brought together fraud and measurement experts to develop a definitional framework and categorization scheme for financial fraud targeting individuals. This taxonomy was validated using consumer complaint data from the Federal Trade Commission. The taxonomy and associated report are available for download here.
With support from the FINRA Foundation and the Bureau of Justice Statistics, I translated the taxonomy into a financial fraud prevalence survey. We pilot tested the instrument with approximately 2,000 online respondents and nearly half reported victimization by one or more of the major categories of fraud in the past year. This is much higher than the Federal Trade Commission’s estimate that 10.8% of U.S. adults were defrauded in 2011. Typical losses from fraud were low as has been found in prior prevalence studies. While 46% of the sample reported losses between $1 and $99, 30% of fraud victims reported losses between $100 and $499, and 21% reported losses of $500 or more. As a direct result of fraud victimization, 35% reported that it was hard or somewhat hard for them to meet their monthly expenses or pay their bills. Detailed findings available here.
Survey items underwent further testing and refinement. The final instrument is being incorporated as a module with the National Crime Victimization Survey, the largest nationally-representative assessment of crime that is administered by the US Bureau of Justice Statistics. This will be the first time that the frequency, cost, and emotional impact of fraud will be estimated on such a large scale (N=~79,000).
Identifying fraud risk factors
Identifying who is most susceptible to scams and fraud is key to targeted prevention, yet research on the relationship between age, economic status, financial literacy and vulnerability to fraud presents a conflicting narrative. A central focus of my research at Stanford and in graduate school has been to explore possible risk factors and to profile typical fraud victims.
In my dissertation I used data from the Health and Retirement Study (HRS) and found that younger age, higher educational attainment, higher income, and widowhood were associated with fraud among adults ages 50+. While stressful life events increase the odds of victimization, loneliness prior to the incident was not statistically significant. Despite the widespread belief that poor cognitive functioning increases susceptibility, my analysis found that better cognitive functioning at baseline increased the odds of victimization.
Previous research found that different types of people fall for different types of scams. To identify possible heterogeneity among victims, I used latent class analysis to test the hypothesis that older victims of fraud not only differ from non-victim, but that they vary by their socioeconomic status and demographic characteristics. Two demographically polarized victim profiles emerged from the analysis of 460 victims. Most of the sample (83%) was high-income/highly-educated middle-aged married adults, and the second, smaller group was mainly low-income/poorly-educated older widowed females. Using a national sample, my findings suggest that there is no single profile of older fraud victims. Prevention and consumer education efforts need to target different segments of the population.
In collaboration with AARP, I analyzed the psychological and behavioral factors associated with being a target and victim of investment fraud. Using a sample of 214 independently verified investment fraud victims and 814 investors from the general population, we found that being male, older, and more materialistic were associated with victimization, as was buying and selling stocks at a high frequency and making an investment after attending a free lunch seminar, watching a TV ad, and/or receiving a phone call or email from an unknown broker. Findings show that engaging in risky investment behaviors and having an psychological orientation toward wealth accumulation increase the probability of victimization.
Preventing exploitation: The role of financial institutions
By it’s very definition, financial exploitation involves a transfer of funds from a victim to a perpetrator. As the institutions from which money leaves the victim’s hands, financial service companies are positioned to stop financial exploitation at its source. I co-authored a paper outlining innovative ways that wealth advisory firms and retail banks are addressing the problem. We interviewed representatives at small and large firms to learn about their financial exploitation training and prevention programs, their detection and response protocols, and how they balance the goals of client protection with privacy and the client’s right to autonomy in financial decision-making. We also interviewed representatives from financial service regulatory agencies to describe what interventions firms are authorized to do to when they suspect elder financial exploitation, the legal barriers they face, and recent rule changes that may overcome some of these barriers. Identifying suspicious activity early through risk algorithms, halting fraudulent transactions, involving social services and law enforcement agencies, and alerting the client’s friends or family members are important strategies that financial service firms can use to minimize elder fraud and financial abuse.
Elder abuse in minority communities
One in ten Americans ages 60 + are victims of elder abuse each year, but rates and perceptions of elder mistreatment differ by race and ethnicity. My early work in graduate school focused on examining these differences. In 2012 I published a study on abuse and neglect among low-income Latino elders living in Los Angeles. We found prevalence rates were four times higher in this population than the prevalence reported in national studies, suggesting that low-income and other cultural and community barriers increase risk of elder mistreatment. We also conducted a series of focus groups with older adults from different ethnic and racial backgrounds to determine cultural differences in how elder abuse is defined and how individuals perceive the community’s response to abuse.
Interventions for elder mistreatment
Resolving cases of elder abuse require care providers, who are mandated reporters, to contact Adult Protective Services (APS) if they suspect mistreatment. Despite efforts to educate them about detection and response, many do not adhere to reporting laws. This is also a problem at financial institutions in states where financial professionals are mandated to report financial exploitation. My research on health care providers’ attitudes about mandatory reporting laws found that there are significant barriers in communication and coordination between agencies. These problems hinder their ability to work together to protect vulnerable older adults.
An innovative approach to improve inter-agency coordination in responding to elder abuse is a Forensic Center, a multidisciplinary team (MDT) of elder abuse stakeholders that meets weekly to provide expert case examination, documentation, and consultation. With funding from the Archstone Foundation and two grants from the National Institute of Justice, my former research lab at USC evaluated case processing activities, case outcomes, and analyzed the cost effectiveness of the Forensic Center model. In separate research studies, we demonstrated that the Forensic Center intervention improves victim welfare and ultimately reduces costs. This research supports replication of the MDT approach in other settings, such as in financial service firms that are on the front lines of financial exploitation.
In addition to research on victims of financial of exploitation, I conducted research on the people who commit fraud by qualitatively exploring how a bogus insurance company orchestrated a scheme to sell annuities to older adults using hard sell persuasion tactics. My study showed that corporate leaders use neutralization techniques—verbal and symbolic cues to rationalize unethical behavior—to convince novice sales agents to engage in unethical door-to-door solicitation. The paper also describes the persuasion tactics sales agents use to deceive older consumers.
During graduate school I took part in a project to write about prominent theories in the field of gerontology with USC Professor, Vern Bengtson. We coauthored two publications on social theories of aging -- one that focused on disengagement, activity, and successful aging theories, and another that presented the major perspectives in social gerontology to date. These included theories about social stratification and the life course in relation to well-being, social–psychological models of well-being, and interpretive or social constructionist perspectives on aging and well-being. This chapter will be published in an introductory textbook on human aging.