7 Essential Skills to Protect Yourself from Scammers
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:
1. 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.
2. 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.)
3. 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.)
4. 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”.
5. 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.
6. 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.
7. 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.