Seniors, don't fall for this dangerous fraudster trick

If you're in your 50s or older, chances are good that financial fraudsters have a big red target on your back. That's because they think you've got money to steal and are more likely to fall for the common tricks they deploy to part you from it.

Researchers at Stanford recently analyzed one powerful trick that fraudsters use to persuade you to set aside your normal good judgment: emotional arousal. It turns out that it doesn't matter whether you're aroused by negative or positive emotions. In either case, older people are more likely to allow their emotions to cloud and overcome their logical decision-making abilities.

The Stanford researchers divided study participants into groups of older adults (ages 65 to 85) and younger adults (ages 30 to 40). They put them through a series of three different laboratory tasks that increased emotional arousal and then assessed participants' responses to misleading advertisements.

The emotional arousal groups were excitement (high-arousal positive emotion), anger (high-arousal negative emotion) and neutral (low arousal). The researchers found that excitement and anger increased the older adult group's intention to purchase falsely advertised items, but that it didn't do the same for the younger adult group. This occurred even when the older adults acknowledged that the ads might not be credible.

The younger adult group showed a significant positive correlation between the credibility of the ad and the stated intent to purchase across all three emotional arousal groups. The older adults, however, showed no significant association between how credible they believed the ad to be and their intent to purchase if they were in the emotional arousal groups.

Stanford concluded that inducing both high-arousal positive and high-arousal negative emotions in older adults increased their susceptibility to misleading ads, resulting in a greater intention to purchase falsely advertised items.

So how do fraudsters induce high-arousal states in their marks? Here are some common messages that can generate either positive or negative emotions:

  • "Act now -- this great opportunity won't be available tomorrow."
  • "Wall Street is rigged against ordinary investors."
  • "Don't be a chump -- insurance companies won't pay you back."
  • "You'll make a killing."
  • "This opportunity is only available to an exclusive group."
  • "Double your money with no risk."
  • "You can get in on the ground floor."
  • "You want to leave a legacy for your kids, don't you?"

Fraud committed by close family and friends on older adults can be particularly insidious. Here are possible messages that arouse powerful emotions in these cases:

  • "We need money for medical treatment."
  • "You're our last hope."
  • "We're being evicted by a cruel landlord."
  • "It's for your grandkids."

Firm, patient, common sense is an excellent way to counteract these tricks:

  • "Let me think it over for a few days."
  • "I'll talk it over with my son/daughter/close friend/financial adviser."
  • "I'm sorry, but my money is all tied up."

The first step is to recognize when you're experiencing strong positive or negative emotions. It's only natural to feel these human emotions, but you should postpone any important decisions beyond the heat of the moment and wait for your emotions to subside so that your normal, logical, decision-making abilities can regain control. It helps to find a few trusted people you can talk things over with, whether adult children or other friends and relatives.

Also, keep your retirement savings in places that will slow you down from making withdrawals on a whim, such as your employer's savings plan or low-cost annuities from insurance companies. Older adults with impending cognitive impairment may also want to add co-signing authority with trusted younger relatives.

To protect yourself and your money, you'll want to put some time and effort into building protections that will help you keep all your money for your retirement -- and not for the enjoyment of some crook.

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    Steve Vernon helped large employers design and manage their retirement programs for more than 35 years as a consulting actuary. Now he's a research scholar for the Stanford Center on Longevity, where he helps collect, direct and disseminate research that will improve the financial security of seniors. He's also president of Rest-of-Life Communications, delivers retirement planning workshops and authored Retirement Game-Changers: Strategies for a Healthy, Financially Secure and Fulfilling Long Life and Money for Life: Turn Your IRA and 401(k) Into a Lifetime Retirement Paycheck.