Individual Characteristics, Financial Literacy and Ability in Detecting Investment Scams

Abstract

This study aims to explore important indicators applicable for the early detection of investment scams and to investigate the effect of age, education and financial literacy on the ability to detectinvestment scams. Data were collected using a questionnaire survey with respondents inSemarang, Indonesia. A total of 311 respondents completed the questionnaires, for a 62.2%response rate, but only 304 questionnaires were usable. Confirmatory factor analysis was used toverify the indicators of investment scams, and a regression model was then employed to analyzethe data. The findings show five main indicators applicable for early detection of investmentscams: a) investments with unreasonably-high returns, b) investment involving salespeople thattend to force potential investors to make an immediate decision about the investment, c)investments without reasonable underlying cores of business, in accordance with principles offairness and prudence in financial investment sectors, d) investments with no clear explanationon how the investment funds are managed, and e) investments without any information on thestructure of management, ownership, and business, and the address of the companies. Finally,the finding shows that the level of individual financial literacy positively affects the ability todetect investment scams. However, age and education do not affect the ability to detectinvestment scams.

Ponzi Schemes and its Prevention: Insights from Malaysia

“…Besides Greenspan (2009), Manning (2018) also found that victims tend to be those of limited financial knowledge. This is consistent with Chariri, Sektiyani, Nurlina and Wulandari (2018) which noted that the level of individual financial literacy positively affects the ability to detect investment scams. Lokanan (2014) added that some victims joined because they are poor and desperate to make ends meet.…”

Detecting Investment Fraud Using the Bias Ratio

“…Although fraud is prevalent in all facets of the finance and investment industry, the hedge fund industry is infamous for fraud that has occurred (Baucus & Mitteness, 2016; Phillips, 2004). Many cases of hedge fund indiscretions, including those observed in the Madoff Ponzi scheme were because of fund managers having the ability to both misreport fund values as well to completely fabricate returns (Bollen & Pool, 2012; Chariri et al, 2018). This ability possessed by hedge fund managers is due to the environment in which hedge funds operate where there is little regulation.…”

A Detailed investigation on Financial literacy and wellbeing

“…It is also the ability of individuals to evaluate. Financial literacy is an important component of investment activities, so one can avoid investment fraud [13].Most studies on financial literacy are the knowledge of adults or students and aims to explore capabilities. As a result, questions Usually refer to their living environment, and their consumers Discuss investment behavior about education or changes in investment behavior caused by the financial crisis.…”