Finances FYI Presented by JPMorgan Chase
Does everything seem more expensive by the day? It’s not just you; inflation is on the rise, and consumers are seeing higher prices everywhere.
Inflation means the purchasing power of a dollar is going down. Essentially, you need more money to buy the same products. Growing economies always experience some inflation, but when levels get high, consumers start to notice.
Unfortunately, inflation also invites more opportunities for financial fraud. During times of high inflation, it’s essential to look out for scams that could hurt your bank account even more.
High prices can be stressful, but falling for a financial scam is even worse.
The Impact of Inflation
To understand how fraud and inflation are related, it’s important to know how inflation shows up in the general economy, businesses, and your personal budget.
Interest Rate Changes
When the country faces high inflation, the government often raises interest rates.
By making it more expensive to borrow money, the government is hoping that consumers will be more frugal and take out fewer loans, essentially keeping more money in their own pockets instead of flooding the market with more dollars. Fewer bills in circulation means each one becomes more valuable.
Higher interest rates might help slow inflation, but they also mean that businesses and individuals who need to borrow money pay a higher price.
Higher Production Costs
Consumers see what happens when inflation causes prices to rise, but they often don’t think about why that’s happening from a business perspective.
Sellers and producers are facing higher costs, too, when they buy the items needed for production. Shipping costs, raw materials, and even advertising costs are all higher for businesses. Those businesses then turn around and pass those higher costs to the consumer.
Less Purchasing Power
The most obvious sign of inflation for an average consumer is sticker shock at the grocery store. Suddenly, your dollars don’t go as far.
Purchasing power extends to all areas of your life. Groceries are more expensive, yes, but many people can tighten their belts for a few months and get by.
But what about when inflation increases the price of big-dollar items, like home repairs and medical bills? During high inflation, every element of your budget can feel squeezed.
Why Scams and Financial Fraud Thrive with Inflation
Adding insult to injury, financial fraud may increase during periods of high inflation thanks to several factors.
Consumer Desperation
When money is tight, most of us are willing to take more risks to help fill the gaps. We don’t double-check our sources or take the time to research decisions.
Fraudster Incentives
Scammers are facing higher prices, too! They get more desperate to make money the easy way and will target victims outside their usual demographics.
Fewer Regulations and Oversight
Businesses facing higher production costs might loosen regulations and oversight, creating more opportunities for knock-off products and poor contract terms. They may also loosen protocols for checking credit card transactions or suspicious billing.
Confusing Facts
When the economy gets stressful, most consumers struggle to find straightforward information about what’s happening with prices, interest rates, and government oversight.
Without clear information from a trusted source, consumers are susceptible to any bits and pieces of “factual explanation” they might see online or hear over the phone.
How to Avoid the Most Common Scams
Once you know how inflation and fraud are connected, it’s easier to avoid some of the most common scams. The Federal Trade Commission reports that scam tactics are constantly evolving, but these tactics are particularly common when prices are high.
AI Deep Fakes
As AI gets more powerful, its ability to feed you false information grows. Scammers can also create convincing websites and personas that easily fool most consumers.
Avoid AI scams by never sharing financial information through links you find on social media or untrusted webpages.
“Lock in the Lowest Rate” Offers
Because interest rates are high during periods of inflation, predatory lenders try to convince you that their terms are the best you’ll get. They’ll also add a deadline to their offer, forcing you to decide in the heat of the moment “before rates go up again.”
Use sites like Prime Rates to check for average loan rates and shop around before committing.
Fake Investment Schemes
With fewer regulations and more financial pressure, investment plans that offer “quick returns” seem tempting. If it sounds too good to be true, it is.
False Authority Figures
The economy is confusing, especially when prices are high. Consumers want answers and “hacks,” and fake experts will try to sell worthless products to help you budget, invest, or get better loan rates.
Don’t ever trust an “expert” who seeks you out; use trusted sources for information or opportunities.
With a little bit of foresight and some patience, you can avoid the financial scams that thrive during inflation.
Finances FYI is presented by JPMorgan Chase. JPMorgan Chase is making a $30 billion commitment over the next five years to address some of the largest drivers of the racial wealth divide.
