A new research program launched by the FINRA Foundation and the Center for Economic and Social Research (CESR) has shown that repeated exposure to fraud awareness education can lower a person´s susceptibility to investment fraud.
The study ”Can Educational Interventions Reduce Susceptibility to Financial Fraud?”, which was focused on adults in the United States, showed that fraud awareness education can make a person more likely to recognize investment frauds.
The new findings were announced in a FINRA press release in March, 2021.
Repeated exposure might be the key
”These findings underscore the need for repeated exposure to educational resources that enable individuals to make informed choices and help them to recognize, avoid and report financial fraud,” says Gerri Walsh, President of the FINRA Foundation. ”Practitioners working in this space have been forced to rely on anecdotal evidence when justifying their efforts because until now, very little published research has examined whether educational interventions can meaningfully reduce individuals’ susceptibility to financial fraud, whether they discourage investing in general, and whether any positive effects might persist over time.”
Is online education the answer?
The study indicates that more online education might be a feasible way of reducing consumers´ likelihood of being the victims of investment fraud.
”Our research suggests that short, easily scalable online education programs can meaningfully reduce adults’ susceptibility to investment fraud—and that these effects can persist with repeated exposure,” says CESR researcher Jeremy Burke.
Does scam awareness make people less interested in investing?
Does awareness of frauds and scams make a person less willing to invest in anything, even in legitimate investment opportunities?
The answer from this study is no, as the project found no evidence that the interventions reduced consumers´ interest in investing in legitimate investment opportunities.
A study on 2,000 adults
The study was comprised of 2,000 adults in the United States. The individuals were drawn from the Understanding America Study – a nationally representative survey panel.
The three groups
Each of the 2,000 individuals was randomly assigned to one of three groups.
- The video group
Individuals in the video group were provided with a 3-minute long educational video about five techniques often present in investment frauds.
- The text group
Individuals in the text group was provided with reading materials about techniques often present in investment frauds. This was the same information as in the video, but in a concise text format.
- The control group
Individuals in the control group received no educational materials.
Researchers measured fraud susceptibility in the three groups immediately after the educational intervention (or for the control group: lack of intervention) and then again six months later.
The testing was carried out using investment pitches drawn from real-world investment offers. Legitimate offers were mixed with fraudulent offers.
A second educational intervention
Some of the members of the video group and the text group received a second educational intervention three months after the first one. This was to see if repeated exposure to educational material would have any impact.
Notable findings from the study
- The educational interventions had an immediate positive impact. This was true for both video intervention and text intervention. Both groups displayed a significantly lower willingness to invest in fraudulent offers compared to the control group.
- The impact of the first educational intervention decayed over time.
- Individuals who received a secondary intervention three months after the first one were less likely to invest in fraudulent opportunities at the six-month mark compared to the control group. (Those who received the secondary intervention were 10% less likely to go for the fraudulent opportunities compared to the control group.)
- The educational interventions did not impact the individuals´ willingness to invest in legitimate investment offers at the six-month mark.
Cognitive ability and financial literacy are important to benefit from educational intervention
In the study, an individual´s cognitive ability and financial literacy was shown to be very important for their ability to benefit from educational interventions.
- Individuals with higher cognitive ability and higher financial literacy disproportionately benefited from the educational interventions.
- Researchers did not see any effect of the interventions for those with low cognitive ability or low financial literacy.
This last point is of course very interesting and also concerning since it highlights how these types of educational interventions (video or text) might not be able to reach individuals in an impactful way when cognitive abilities and/or financial literacy levels are low.
Fraud is more compelling than honest investment opportunities
Another very interesting finding from this study was that despite the effectiveness of the interventions, study participants were still more willing to invest in fraudulent opportunities than legitimate ones. This was true across all treatment conditions. This is likely due to the fact that financial frauds often promise higher returns than honest business opportunities. A contributor factor is that financial frauds often are based on complicated financial instruments. It can, as an example, be very hard to differentiate a fraudulent and an honest forex instrument without knowing extensive knowledge of the forex trading industry.
About Center for Economic and Social Research (CESR)
CESR is a center within the University of Southern California’s Dana and David Dornsife School of Letters, Arts and Sciences.
The Financial Industry Regulatory Authority (FINRA) is a private United States corporation that acts as a self-regulatory organization for member brokerage firms and exchange markets. It is the largest independent regulator for all securities firms doing business in the United States.