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Monday, July 02, 2007
BY JOHN BRANTON, Columbian staff writer

AARP learned some strange things when it quizzed investors in Washington, and folks who were victims of investment scams, in a recent survey of basic financial knowledge.

Asked how diversifying one's investments can affect the risk of losing money, only 46 percent of nonvictim investors answered correctly, the group said.

Slightly more scam victims, 54 percent, got it right, perhaps because they had the experience, as Jimi Hendrix might have said, of being experienced.

Only 41 percent of nonvictim investors, and 44 percent of victims, knew how bond prices change with interest rates.

In general, it was a poor showing.

"Across the board, they all flunked the financial literacy quiz," said Jason Erskine, a spokesman for AARP Washington based in Seattle.

The survey also showed that the typical victim of an investment scam is a man who is married and employed, and on average 55 years old - not a socially isolated widow, Erskine said.

As might be expected, the survey found the victims more gullible. Only 61 percent of victims said they'd be wary of the statement, "There is no way to lose on this investment, it is fully secured."

Among nonvictim investors, 70 percent said they'd pull the plug after hearing that one.

So it looks like folks should spend less time flopped in front of their HD flat screens and more time checking out their investments, and learning to sidestep greedy crooks.

One way to do that is a 47-page booklet called "Invest Wise Washington: Save, Manage, Protect," available free and sponsored by AARP, the Washington State Department of Financial Institutions and the Investor Protection Trust.

The no-nonsense, up-to-date booklet describes 17 investment scams and schemes, including churning, "an abusive sales practice in which unethical securities professionals make unnecessary and/or excessive trades in order to generate commissions."

And there are 10 persuasion tactics the writers explain. At the top of the list is "Source Credibility," which involves con artists' claiming to be well-established, reputable or bonded when some research would show they're not.

If you want to learn more, the booklet ends with a number of resources that ordinary investors can tap, ranging from the Washington attorney general's office to the commissioners who regulate the insurance business under state laws.