Nearly half of B.C. young adults are susceptible to the “trust trap”

NEARLY half of young adults in B.C. would consider putting money into a dubious investment offer if it came from a friend or family member, according to new research commissioned by the British Columbia Securities Commission (BCSC).

To mark Fraud Prevention Month, the BCSC surveyed more than 800 British Columbians  to measure how susceptible they were to the “trust trap” – a questionable investment tip from friends or family.

Respondents were asked how they would react to an investment opportunity that guarantees a monthly return of 10 per cent to 15 per cent and has no risk. For half of the respondents, the offer came from a friend or family member, and for the other half, the offer came from “someone at a social event.”

Overall, people were more willing to consider an offer if it came from a friend or family member: 29 percent said it was “worth looking into,” compared with 20 per cent if the offer came from someone at a social event.

The most vulnerability was found among 18- to 34-year-olds: 47 per cent of them would consider such an offer from a friend or relative.

“Fraudsters exploit the trust and friendship that exists in tight-knit groups,” said Doug Muir, the BCSC’s Director of Enforcement. “Investors need to do their own research before making an investment, and shouldn’t just rely on advice from their friends, family or co-workers.”

Fraudulent investment offers that exploit family, friendship and social connections are known as “affinity fraud.” Ponzi schemes, in which part of the money from new investors is paid to earlier investors often have an affinity component.

People 55 years old or older were the most skeptical in such situations, with only 12 per cent being willing to consider such an investment offer from a friend or relative.

Whether the offer came from a friend or family member or just a random person at a social event can make a big difference in vulnerability, depending on someone’s age and gender.

People who are 35- to 54-years-old were almost twice as likely to consider such a dodgy investment offer if it came from friends or relatives. Women were more susceptible than men: the percentage of women intrigued by such an offer was 13 points higher when it came from a friend or relative. By comparison, the source of the offer seemed to make less of difference for men, for whom the gap was only six points.

To help crack down on this type of white collar crime, the BCSC is running a multi-media “Don’t Be Part of a Fraud” campaign, highlighting the importance of not falling into the trust trap.

Investors can take the BCSC’s  new scenario-based quiz to test their ability to spot suspicious investment opportunities, read the affinity fraud warning signs or  contact the BCSC if they have a concern about investment fraud.

This online survey was conducted for the BCSC by Innovative Research Group among a representative sample of British Columbians from February 6 to 10 as part of an omnibus survey. A total of 801 British Columbians aged 18 and over completed the survey. The results are weighted to a representative sample of 800 by age and gender within each region of the province using the latest available Census data to reflect the actual demographic composition of the population.