Sabino sent me an MSNBC article about the unfolding subprime lending crisis. The piece provides a glimpse at the deceptive practices used to prey on people like Kerrie Russo, who chose to refinance her mortgage on a promise of lower payments. When she failed to read her loan documents closely, she found herself deep in expanding debt. Though the mortgage broker lured her into this loan, she signed the papers. Because she didn’t know how to protect herself, she faces a financial crisis.
Learning to avoid problems like this is an essential component of financial literacy. It is your responsibility to protect your money. Here are seven skills that can keep you safe from hucksters:
- Ignore anything that sounds too good to be true. There are no short-cuts to wealth. If the son of a deposed Nigerian bureaucrat e-mails you offering to pay $100,000 for a few hours work, you know you’re being scammed. Beware of similar deals on a smaller scale. If a mortgage broker tells you that you qualify for a more expensive home than you expected, double-check her figures with another broker, or with an on-line calculator.
- Seek recommendations from people you trust. Referrals increase the odds of finding a quality professional. There’s rarely a need to flip blindly through the yellow pages (or google) to find a mortgage broker or a roofing contractor. Ask your friends, your family, your co-workers. Kris and I seek recommendations whenever we make big money decisions; we’re rarely disappointed. (With one notable exception.)
- Refuse transactions you do not initiate. Many people are suckered by door-to-door salesmen and telemarketers. I used to be like this. I couldn’t say no. Now I know that if I didn’t initiate the transaction, then it’s something I don’t need. (I’ll never be able to unload the $500 set of encyclopedias I bought in 1996. Seriously.)
- Don’t allow yourself to be pressured. Salesmen will urge you to make a quick decision. Your natural response may be to say “yes” because you’re afraid of missing a good deal. You’re not going to miss a good deal. Learn to say “no”.
- Read everything you sign. This is vital. Read all the policy changes that you get in the mail from banks, insurance agents, and credit card companies. At the very least, read the documents on your major purchases, especially cars and homes. Especially homes. Let me be blunt: you’re a fool if you don’t read your mortgage papers before you sign them. It can be daunting when you get to the title company and see the huge stack of documents. The title officer may try to rush you. Take your time. Read everything. Ask questions. Failure to do this can bring you years of misery. Sound absurd? Tell that to the woman in the MSNBC article I mentioned earlier. Or check out Luneray’s homebuying tale from last fall.
- Don’t invest in things you do not understand. If you don’t understand the mortgage your broker offers, don’t take it. If you don’t understand buying stocks on margin, don’t do it. If you don’t understand that awesome new investment opportunity that your friend keeps pimping, then don’t buy into it.
- Surround yourself with a team of experts. This takes time. Cultivate relationships with people you trust, people who can help you with financial matters. If you can, develop friendships with an accountant, a lawyer, a real estate agent, an insurance agent, a stockbroker. Rely on their advice.
There are a lot of people out there eager to separate you from your fortune. It is your responsibility to keep your money safe. The great thing is that it’s easy to defend against scammers: by default, you are protected. You can’t be suckered if you don’t do anything.
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A very good list. I especially like numbers 4 and 6. Learning to say no was one of the best lessons I’ve learned to date. I also will never invest in something that I don’t understand. If I don’t understand how an investment will make money, why would I put my money into it?
-limeade
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Read Casey Serin’s Website
Do nothing that he does.
You should be scam free
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To me, reading everything you sign also means understanding everything you sign. I can read lots of things, but if I don’t really know what it says then I may as well not bother. If you think that you will find it difficult to understand a document, seek help.
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Great list! Keeping alert when confronted with anything of this nature is so important. Another BIG way to protect yourself from scammers is to “know thyself”. Let’s be honest; scammers are the most successful with people who are sitting passively, waiting for that to-good-to-be-true opportunity to come along. If we regularly (and CONSCIOUSLY) confront our own issues of contentment/discontentment, define needs/wants, and review our financial goals, we’re much less likely to succumb to any “opportunity” that comes our way.
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#5 would be #2 if I were creating this list. And it should be in a 24 point font to drive the point home. Too many people assume that what the salesperson promised will be what’s in the paperwork – but salespersons’s promises are not binding legal contracts, the papers you signed are. Differences may simply be “clerical errors” – but if there are any, and they’re in the seller’s favor, you can bet the seller will hold you to it. And my #1 is something that you left out: Assume that all salespeople are lying, cheating scum who are out to rip you off. While this may seem a bit harsh towards salespeople, the point is that salespeople are trying to separate you from your money – and many of the work on commission, so the more money they get from you, the more they get paid. Verify everything that they say. Make sure that what you’re getting is what you agreed to before you take out your wallet or your checkbook.
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Great post.
A few years back I was scammed on ebay. It was a too good to be true situation. In my case it WAS too good to be true. I lost $550 bucks
(but im not stuck with encyclopedias!)
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All great points. A common theme in several of those skills is to take your time and don’t rush in. Anything worth doing, is worth doing right.
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I don’t think it’s appropriate to recommend making friends with people based on their profession and then asking them to provide professional advice (which is usually the source of their livelihood) for free. If you want a good lawyer, accountant, etc., then hire one. Make your friends for their personal qualities and don’t expect freebies.
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Hi,
Really good post. Simple and clear as water. You could also put something about the “internet scammers”
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You are absolutely correct. I tried not to come across as if I think people should take advantage of friends. My point was that it’s a good idea to make the most of your friends’ skills, and to foster relationships that are *mutually* beneficial. I’m not friends with my accountant because he’s my accountant. I’m friends with him because he’s a nice guy and fun to be around. I like him. I would be friends with him even if he were a tulip farmer. I’d be friends with my lawyer even if he were a librarian. But I think it’s important to rely upon the skills of the people you know in order to protect yourself. (And by all means, pay for the advice when it’s appropriate!)
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- Refuse transactions you do not initiate.
That one goes a long way for a lot of things, most of all keeping on a budget. Back before DoNoCall.gov that was my standard reply to telemarketers.
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good post.. even myspace has spam now.. from free starbucks to ipods..
i learned in life that NOTHING is FREE.. so you know that stuff is FAKE!
there are also ways for spammers/hackers to get your password on myspace.. so it’s advised to change it on a regular basis
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I’ve always enjoyed the movie “For a few dollars more”. In it, the character of Indio makes a fairly lofty statement…”It’s easy to get the money, the trouble is keeping it”. I’ve always found it funny that financial wisdom can come from cowboy movies
…but then, perhaps that’s just me
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Good list. I think following Rule #1 could solve a good chunk of the financial mistakes I’ve seen friends make. I would also add to your list what I like to call The Carrot Top Rule:
“If the odds of Carrot Top winning an Academy Award for acting are better than the odds of an apparent scam NOT being a scam, it’s a scam.”
I repeat this rule to myself whenever I see a Rolex watch on sale for $12 at eBay.
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I once got scammed by a guy back in my undergraduate days. He came round to the house and told us his gas prices would be cheaper.
I cannot think for the life of me why I actually accepted the offer. It didn’t work out. I switched back!
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[...] que te pueden hacer la vida imposible o por lo menos amargartela un poco; en este blog, get rich slowly, dan algunos consejos para [...]
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One more thing to add about “scammers” is the new generation of debt collectors, known as “bottom feeders”. These are companies, such as AFNI,Asset Acceptance, Palisades Collection, and several others, that buy very old debts and attempt to collect on them. On several occasions, we have been contacted by them with only the minimum amount of information, including a maiden name from years ago in another state that my girlfriend just happened to live in, but not her bill.
Once you call them or talk to them, many of these bottom feeders will lie, cheat and steal, in direct violation of the Fair Debt Collection Practices Act. One of them told my girlfriend that not paying her car loan was a felony, she was going to prison, and they would garnish her wages starting today if she didn’t pay. (if a creditor can charge you with a felony without going through the District Attorney, and send you to prison without a judge, then what wages would you have to garnish?).
Another creditor, Asset Acceptance, tried to collect a medical bill for $45 that was illegally charged. The insurance company was never billed in the first place, then when they were finally billed after I called, they billed it wrong and my insurance company said that the cost of materials was included in another charge. I have on my insurance the statement that I can not be billed for any charges that insurance does not cover or qualify from any in-network provider, yet they still went after me until I wrote a letter and involved my State Attorney in a possible “insurance fraud” cause.
The bottom line is, watch for the fake debt collectors as well when watching for scams, don’t take their telephone calls as they will lie to you to collect their commission, and accept only mailed responses. If you receive a letter of a debt or see something on your credit report, dispute the debt in writing and/or demand proof of the debt.
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[...] your mortgage. Remember the story from earlier in the month about the woman trapped by a mortgage she had failed to read? Don’t be like her. If you don’t know what your mortgage [...]
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Good list. One thing that these scams count on is GREED, this why people fall for these traps. I remember one episode of 20/20 where a surgeon lost half a million dollars to the Nigerian scam. He bluntly told the cameras, I was greedy. It summarize the whole scamming business. They set traps to find those who are greedy enough to fall into it.
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