Tuesday, September 30, 2008

More thoughts on the cost of food

One excuse for not having any stored food on hand, is the cost. If you feel like you are struggling to provide food for your family, you are not likely to be receptive to the idea of buying extra food to begin a storage program. It is helpful to get a realistic idea of the true cost of food in America. The United States Department of Agriculture, Economic Research Service is a great source for information on food consumption in the United States. I will refer to a the USDA Website:

Americans spent over $583 billion dollars on food in 2007. Although this figure is stagering, the percentage Americans spent on food as a share of their disposable income has dropped from over 20% in 1929 to 9.8 percent (including food purchased away from home) in 2007. Americans annually spent $2,242 per capita on food in 2007, including, once again, food purchased away from home. In other countries for the same year, people spent as much as 50% of their disposable income on food. Some countries, such as India, have an annual per capita spending on food of only $174.

I admit, it is difficult to believe that Americans only spend about $2,200 a year per capita on food when you are following someone pushing two huge carts of food out of Walmart or Costco,,, , but from these figures, it appears that as of 2007 the daily average food cost per person, has now risen to just over $6. Americans have a long way to go before they can be considered poor, compared to other places in the world.

However, the pattern of food spending varies with income:

Food expenditures vary by income level

First number is for Income below 130 percent of the poverty line
The second number is for Income between 130 and 150% of the poverty line

At-home foods
Per person weekly
spending, 2003 dollars

Bread and baked goods 2.22 ---- 2.67
Dairy foods 2.42 ---- 3.03
Fruit 2.06 ---- 2.67
Beef 1.66 ---- 1.98
Frozen prepared foods 0.90 ---- 1.03
Vegetables 1.99 ---- 2.39

Notes: In fiscal year 2003, the poverty line was $18,660 per year for a
family of four with two related children under age 18.
All differences in expenditures between the two income groups are
statistically significant at the 10-percent level.
Source: Analysis by USDA, Economic Research Service, of the Bureau
of Labor Statistics’ 2003 Consumer Expenditure Survey.

A comprehensive study entitled "Household Food Security in the United States, 2002" examines the prevalence of hunger in the United States.

See http://www.ers.usda.gov/publications/fanrr35/

To get an idea of what the U.S. Government considers to be the standard for food costs, you need to understand the USDA's Thrifty Food Plan. To quote:

"The Thrifty Food Plan—developed by USDA—serves as a national standard for a nutritious diet at low cost. It represents a set of “market baskets” of food that people of specific age and gender could consume at home to maintain a healthful diet that meets current dietary standards, taking into account the food consumption patterns of U.S. households. The cost of the meal plan for each age/gender category is calculated based on average national food prices adjusted for inflation. The cost of the market basket for a household is further adjusted by household size to account for economies of scale."

"For example, the weekly Thrifty Food Plan cost for a household composed of a married couple with no children, ages 29 (husband) and 30 (wife), is given by adding the individual Thrifty Food
Plan costs for the husband ($30.50) and wife ($27.50) and adjusting the total upward by 10 percent. The adjusted total ($63.80) represents the cost of the Thrifty Food Plan for this type of household. "

The cost for the Thrifty Food Plan for a family of two adults and two young children is $92.70 per week.

More later.

Why should we have a food storage program? The challenge of food prices

The U.S. Department of Labor's most recent report on the Consumer Price Index shows that food and beverage prices are rising at an annual rate of 9.1 percent based on the three months ending August, 2008. The Special Index for food shows an annualized increase of 9.6 percent.

See http://www.bls.gov/news.release/cpi.nr0.htm

Another report from the U.S. Department of Agriculture, Economic Research Service predicts that food-at-home prices, led by eggs, dairy, and poultry prices, increased 4.2 per cent in 2007. The same report notes that among 154 forms of fruits and vegetables priced using ACNeilsen Homescan data, more than half were estimated to cost 25 cents or less per serving. Consumers can meet the recommendation of three servings of fruits and four servings of vegetables daily for 64 cents.

See http://www.ers.usda.gov/Briefing/CPIFoodAndExpenditures/

"According to the Homescan data, consumers spent $223 billion on food at retail stores in 1999. Expenditures on fruits and vegetables accounted for 7.6 percent and 7.7 percent of this total. Fresh fruits and vegetables accounted for more than half of all expenditures on fruits and vegetables, while canned vegetables and fruit juices accounted for almost one-third of expenditures. In comparison, consumers spent 9 percent on bakery products, 8 percent on red meat, 6 percent on carbonated soft drinks, 4.3 percent on cheese, 3.4 percent on breakfast cereals, and 3.2 percent on candy (table 2). We ranked the 27 fruits and 30 vegetables in our sample according to quantity purchased, expenditures, and total servings purchased, regardless of the form in which they were purchased (fresh, canned, frozen, or juice). Again, totals include only the processed products that are plain, unflavored, and/or unsweetened (to the extent possible). Among the 27 fruits, Americans spent the most money on oranges, bought the most pounds of bananas, and ate the most servings of apples (table 3). These three fruits were the top three in quantity and servings, and among the top four in expenditures (consumers spent more on grapes than apples). For most fruits (except for watermelon and plums), quantity, cost, and servings are closely related. Among the 30 vegetables, potatoes accounted for the largest share of expenditures, pounds purchased, and servings eaten (table 4). Potato totals were more than three times as many pounds purchased, and nearly four times as many servings (but only 15 percent more dollars) as tomatoes, the second most popular vegetable in all three categories."

See http://www.ers.usda.gov/publications/aib790/aib790c.pdf

Figure it out, in the U.S. in 1999, we spent over $7 billion on candy! The same study shows that in 1999 the cost of nutritional food was 64 cents per day when the average American was spending $5.50 per day on food. Fulfilling all of a person's nutritional needs could be accomplished for less than a dollar. Although there has been some inflation since that time, the nutritious food for a family of four would cost far less than $120 per month.

I would suspect that most people would not believe these figures.

More later.

Monday, September 29, 2008

Let's Focus on Food

One of the most insidious problems resulting from the current economic crisis is the possibility that many more families will go hungry. Rather than participate in a polemic on the cause of the crisis, it is important to realize that there are things we can all do to lesson the impact of the crisis on our family. One of the ways, is to have a program of home storage. The Church of Jesus Christ of Latter-day Saints has developed extensive programs and materials that will assist in setting up your own personal or family plan to carry you through hard times.

The Church's First Presidency has stated:

Dear Brothers and Sisters:
Our Heavenly Father created this beautiful earth, with all its abundance,
for our benefit and use. His purpose is to provide for our needs
as we walk in faith and obedience. He has lovingly commanded us to
“prepare every needful thing” (see D&C 109:8) so that, should adversity
come, we may care for ourselves and our neighbors and support bishops
as they care for others.
We encourage Church members worldwide to prepare for adversity
in life by having a basic supply of food and water and some money in
We ask that you be wise as you store food and water and build your
savings. Do not go to extremes; it is not prudent, for example, to go into
debt to establish your food storage all at once. With careful planning, you
can, over time, establish a home storage supply and a financial reserve.
We realize that some of you may not have financial resources or
space for such storage. Some of you may be prohibited by law from
storing large amounts of food. We encourage you to store as much as
circumstances allow.
May the Lord bless you in your home storage efforts.
The First Presidency

The fact is, you don't have to be a member of the Church to enjoy the benefits of home storage. My family has always made food storage a priority. As a result, we have weathered many hard times and have always had food for our family. We have seven children and sometimes our budget barely covered our house payment. Without a food storage program, there would have been many times that our family would have gone hungry. During the next few weeks, I will discuss some of the practical realities of having an adequate food storage plan. Historically, we have talked about a year's supply of basic necessities. Currently, the Church encourages its members to have a three month's supply of food that is part of your normal, daily diet; also to store drinking water. Provident home storage also includes a plan to save a financial reserve and, where permitted, have longer shelf-life storage such as wheat, rice and beans.

One of the first challenges faced by those living in today's world is the loss of skills associated with food production, storage and preparation. Highly prepared foods usually have a very short shelf-life. Some foods, like milk, vegetables and fruits, have a shelf-life limited to a matter of days. Other prepared foods may last longer, such as canned goods and dried foods, like pasta, but they may still deteriorate over time. In any food storage situation it is very important to have a plan. It only makes sense to buy foods when they are in stock and cheaper and then use the foods over a period of time. Because of the loss of basic skills concerning food, most people rely heavily on prepared food. In my work experience, I have seen my co-workers spend considerable time and even more money buying expensive prepared foods each day for lunch. Now for more than forty years, I have been eating a simple lunch of a sandwich and a piece of fruit and occasionally, a cookie. It is truly amazing how much money can be saved from this simple habit.

More later.

Sunday, September 28, 2008

Four Red Flags

Since there are many more scams than these 10 common types we discussed, we have four “red flags” or things that should increase your suspicion and make you aware of a possible scam. These four warning signs are 1. the solicitor fails to give you or is reluctant to disclose all the terms of the “deal”; 2. you hear the words “good deal” or “free”; 3. the salesperson engages in high-pressure tactics and demands immediate action; and 4. the salesperson promises unrealistic high returns or earnings.

#1. The solicitor fails or is reluctant to give you all the terms of the “deal”

Legitimate businesses will always give you more information than you want concerning their products and services. If you find any resistance at all in producing information about the “deal” then you should become concerned. Federal laws require extensive disclosure especially in the areas of securities regulation and land sales. If you receive any pressure at all to commit yourself before receiving complete information you can assume that you are the victim of a scam. For example, if you have ever purchased stock through a legitimate stockbroker or opened a money market account you know that you’re provided with many documents explaining your investment in detail. You should immediately become alarmed if this detailed information is not available.

Sometime ago, my parents, who are in their 70s, were in the process of purchasing a new home to be constructed. When presented with the purchase documents, my father, who had practiced law for nearly 40 years, began to read the documents. He quickly discovered that the seller, the local real estate developer, was requiring, my father, the purchaser, to assume the construction loan. Normally, the developer borrows the funds for construction that are then repaid when the house is completed. In this case, the developer was attempting to transfer the risk of the construction of a home to my father. Further reading of the documents disclosed that the funds provided by my parents would be used to pay off other lots in the subdivision. Obviously, my father objected to using his credit to finance the developer. When my father called this fact to the attention of the real estate salesperson, she said that she “hated working with attorneys, accountants, and doctors because they read all the documents.” Needless to say, my parents did not purchase the house.

One tactic commonly used in lieu of full disclosure, is to present a pile of documents for signature in a high-pressure environment giving the impression that there is not time to read the documents. This amounts to the same thing as if all of the terms of the deal had not been presented in the first place.

#2. You hear the words “good deal” or “free”

It is almost impossible to pick up a newspaper or magazine without finding an ad with the words “good deal” or “free.” Not every free offer is a scam but the word “free” is certainly overused. In fact, nothing is “free.” There is cost associated with every offer and product. Commonly, the cost of the “free” item is covered by the ever present “shipping and handling charges.” Scam artists use free offers to get the attention of their victims. The simple rule is that if you have to pay‑it isn’t free. Sometimes “free prizes” are given away for advertising purposes or are sponsored by a business. In these cases, someone else is paying for the item.

In a scam, the free item is either never produced or has little or no value. Sometimes, the enticement of the free item is simply a ruse to obtain personal information about the victim, such as credit card numbers or bank account numbers. Occasionally, free offers are used to generate sales leads so that high-pressure salesman can close a sale or engage in other scams.

Other commonly-used phrases include:

“You have won a valuable, free prize.”

“You have been selected for this special offer...”

“As a special added bonus you will receive...”

“There are very few of these special items left.”

“You must make up your mind right away.”

“Hurry, this offer can’t last.”

“This is a special low-risk investment with an extremely high return.”

“You can only receive this special offer by calling this number right now.”

“This investment has a higher return than any other available at this time.”

“We know you won’t want to miss this special offer.”

#3. The salesperson engages in high-pressure tactics and demands immediate action

Good deals sell themselves. There is no room for high-pressure sales tactics in legitimate businesses. Scam artists know that if the victims are allowed time to think things over they will see through the scheme and fail to be victimized. If there isn’t time to consult with friends, relatives or professional advisers then you are probably about become a victim.

#4. The salesperson promises unrealistic high returns or earnings

Every investment has a risk and a rate of return. In most scams, the rate of return is zero. Therefore, the risk is infinite. You are absolutely going to lose your money in a scam. There is no chance that you’ll get a return on your investment. If you are unfamiliar with the investment and have no way of judging the risk or potential return, then you should use extreme caution. For example, if the normal rate of return on a certificate of deposit at local bank were 6%, a promised rate of return of 12% would be unrealistic. Even though 12% interest is not remarkably high, speaking in the context of a certificate of deposit, it is unrealistic. Some friends of mine, were convinced to put $50,000 into a 12% certificate of deposit. The only problem was that the bank was non-existent. They lost all their money. The simple rule here is: “the higher the return‑the higher the risk.” In many scams the promised returns are so high that the victims have to leave commonsense behind to believe that they are possible.

Before paying any money to anyone with the promise of a high return, it is extremely important to investigate thoroughly. Make sure all offers are in writing and that you understand everything. Talk the deal over with an attorney or trusted financial adviser. Think through the consequences of losing all your money. Can you really afford to make the investment? Understand that any financial institution making the same investment would require substantial collateral. Collateral is something of real value used to secure the investment or loan. Financial institutions such as banks take collateral in real estate or valuable personal property. In both cases, the financial institution will require an independent appraisal of the collateral property before investing or making loan. It is also normal practice to require the principals of the business to sign personal guarantees. If any of these elements of the normal investment or loan transaction are absent you should be very wary. It is not unusual for the scam victim to think far enough through the transaction to require collateral but fail to require an appraisal. Collateral in worthless property is worthless.

Sunday, September 21, 2008

#10. Business and loan company scams.

Scam artists use the victim’s desire to improve his or her lifestyle by offering “business opportunities” or “advance fee loan” scams.

It was very hard for Peggy to get away from home. She tended her two small granddaughters during the day and was usually so tired by the evening that she didn’t feel like going out. She did wish that she could earn a little extra money to help pay expenses. One day, while looking through a magazine, she noticed a small ad: “Earn extra money at home.” She looked closer. “No experience required, all materials supplied.” The ad listed an email address and an out-of-state post office box. Peggy wrote a letter requesting information and shortly thereafter she received a large envelope in the mail. The envelope described a home mailing business and included charts showing how much money she could make each week by processing envelopes for companies in her area. Peggy decided that here was something she could do and still watch the children.

After reading all of the materials, Peggy filled out the application. The application said she needed to pay a $50 application fee. Peggy really didn’t have that much money to waste, but the materials said she could easily make the money back in less than a week. Peggy sent in the money and the application the next day. She waited every day for the materials. About two weeks later, she received a package in the mail. The materials contained an explanation about the envelope stuffing business and some sample advertising. There was a price sheet with a list of “additional items suggested for use in the business.” Peggy opened the book about the envelope stuffing business. The first thing it said to do was to contact businesses in her area to see if they needed an envelope stuffing service. Peggy never did figure out that she was the victim of a scam.

Elements of the business opportunity scam:

  • Promises of high returns or earnings with little or no work.
  • Application or processing fees charged for explanatory materials.
  • Suspect categories of business opportunities typically include vending machines, amusement games, pay telephones, display racks, CD-ROM computer software, and other similar activities.
  • Uses out-of-state post office box address, 800-number, or email address.

Sometimes it is difficult for professional to determine whether a business opportunity is real or a scam. To the right person, a business idea can be worth a lot of money. There are many legitimate opportunities for people to work in their homes. Service businesses, mail-order businesses, computer design and desktop publishing, many more activities, can be built into profitable home businesses. The important thing to remember about any business opportunity is that it is a business. All small businesses require a great deal of time and dedication to be successful. Even legitimate ads seldom emphasize the tremendous amount of effort that is necessary to be successful. Either unique products or unique skills can become the basis for a profitable business. The best place to begin your investigation of small business opportunities is your local public library. You can also consult your local community college or university campus for additional information about beginning a home business. Other resources include government agencies, including the Small Business Administration.

Although legitimate business opportunities may advertise in newspapers and magazines, many scams are also included. Exercise extreme caution if the ad contains little more than an “800” number and promises of high returns. Do not assume that because the ad appears in a major newspaper or magazine it has been checked for accuracy.

No matter what type of business opportunity you are interested in, you should become acquainted with the business before you spend any money. Is important to obtain a detailed description of exactly what kind of work is required. Peggy, in the example above, was looking for a job she could do entirely at home. If she had investigated the envelope stuffing business she would have found that she needed to go out to businesses in her area to solicit work. Because she was unable to do this, no matter how much material she had received, she would have been unable to do the work. Business opportunity and franchise promoters are required to provide you with disclosure documents before you sign any contract or pay any fees. This disclosure document should contain sections on risks, necessary business experience, background information concerning the company and its directors, any history of lawsuits against the offering company, a detailed explanation of any fees and conditions under which they will be paid, audited financial statements containing information for at least the past three years, and substantiation of any earnings claims.

Most states and cities require some type of business registration. If you live in a city there may be restrictions on the type of business you can do in your home. Often cities do not allow inventory-type businesses in residential areas, especially if the business requires deliveries in trucks.

Many times the promised materials either never arrive or are useless. In some instances, scam artists sell nonexistent “franchises” for hundreds or thousands of dollars. In every case the loss could be avoided if the potential victim would spend time investigating the business opportunity. One of the best ways to investigate is to ask for references and then go and see the business in operation. If you merely talk to the references, you could be talking to one of the scam artist’s confederates sometimes known as “singers,” or individuals who provide phony testimonials. If the business involves retail locations, take the time to visit locations where the business is actually in operation. Interview at least five or six references. Ask them specific questions about the business and the support received from the promoter. Ask specific questions about their income and whether it lived up to their expectations. Also ask them what they like and dislike about the business opportunity.

Seek professional help. Don’t lose thousands of dollars because you’re unwilling to spend a few hundred dollars talking to an accountant or lawyer. If you consult a professional, listen to what they say and follow the advice you receive. Remember that a scam artist will promise practically anything to get you to invest.

The number of new businesses that succeed in staying in business for more than one year is very small. If you’re involved with a scam there’s no possibility of success no matter how hard you work.

Protect yourself by:

  • Investigating thoroughly any potential business opportunity.
  • Asking for references where you can actually observe the business in operation and watching out for “singers.”
  • Obtaining a detailed description of the work required to make the business operate.
  • Talking to the Better Business Bureau and local government agencies about the type of business involved.
  • Checking the public library or the Internet for information about the business.
  • Checking compliance with state and local laws and obtaining any necessary licenses.
  • Interviewing five or six references.
  • Getting professional help and advice.
  • Remembering that a scam artist will promise practically anything to get you to invest.
  • Making sure that you can operate the type of business you’re interested in from your home without violating any zoning restrictions or ordinances.

Another type of scam involves loans for which the person must pay an advance fee of some kind.

Bill had his eye on a new bass fishing boat. Unfortunately, he lived on a very strict budget. The company he worked for had shut down the plant in his hometown and since he was close to retirement, he was unable to get a new job. Although he had worked for many years his pension was not large and he relied on Social Security to make up the difference. One day he received a postcard advertising a low interest loan. The card said that if he called the number they could qualify him over the phone.

Bill called the number on the card was told that within a few minutes he could qualify for a loan. The man on the phone told him that there was a fee, but the loan was guaranteed. The man asked him several questions about his work history and financial situation. He told Bill to wait a few minutes and he would have an answer. When he came back on the line he congratulated Bill on qualifying for the loan and told him that there was a $100 origination fee. Bill was instructed to have an overnight mail pick-up would arrive at his home that afternoon and that the company would pay to have his check sent overnight. The man told him he would receive the loan about a week after they received the check. After two weeks Bill tried to call the number back. The number had been disconnected. It was some time before he realized he had been scammed.

Elements of the advanced fee loan scam

  • An offer of guaranteed credit for the payment of a fee.
  • Loans offered at a below-market interest rate.
  • Very quick or instant loan qualification.
  • The requirement that the loan fee be paid immediately.
  • The transaction is conducted entirely over the telephone.
  • Advertisements for loan services made by telemarketing or direct-mail advertising.

It is common for loan institutions, including banks, to charge a loan processing fee, or application fee. This fee is charged to cover the costs of qualifying you for a loan, and obtaining credit information. The difference between legitimate businesses and scams is that the advance fee loans schemes claim that the fee will “guarantee the loan will be made.” A guarantee or promise of qualification for a loan can signal a potential scam, especially if the company is willing to send a runner to pick up your check or pay for overnight delivery. Many of these companies also advertise that they can obtain a loan for you, even if you have bad credit or no credit

Legitimate loan companies do not guarantee loans. In some states, assessing or collecting an advanced fee for loan is a crime, although some businesses such as banks and credit unions are exempt from this prohibition. Before paying a fee to obtain a loan, make sure you are dealing with a legitimate loan company. Banks, credit unions, and loan companies are highly regulated and information concerning legitimate companies should be available from your state banking department or attorney general’s office

Protect yourself by:

  • Verifying the status of any loan company with which you are not familiar with the state banking department or attorney general’s office.
  • Realizing that a legitimate loan institution will not “guarantee” the receipt of a loan.
  • Realizing that legitimate financial institutions cannot risk qualifying you for loan without researching your credit history.

Tuesday, September 16, 2008

#9. Bank examiners and “government” scams

Scam artists prey on the victim’s respect of “official” institutions to steal money. This is done through impersonating bank examiners, credit card companies, and government agencies.

Edna received a call from a person claiming to be representative from her bank. The caller claimed that a certain amount of money was missing from her bank account and that verification was needed of the loss. The caller went on to explain that they suspected one of the bank’s employees was taking the money. “Would Edna like to assist the bank in catching the crook?” Of course Edna agreed to help the person on the phone. The caller said that an official from the bank would come to her home to examine her bank book and verify the balance. Shortly thereafter a nice looking young man in a uniform appeared her door he showed her identification that indicated he was from the bank. He asked to see her bank book. After making some calculations he asked her if she could come to the bank with him and withdraw some money to verify the bank balances. Edna went with the nice young man to the bank. She withdrew a large sum of cash at his instruction. He gave her a written receipt for the cash and said he would contact her the next day. Three days later when she still had not heard from the bank, she called the police and found out she was a victim of the bank examiners scam.

Elements of the bank examiners scam

  • A person calls or visits your home claiming to be representative of your bank or credit union.
  • Commonly, the person represents that the bank is experiencing some trouble with your account, either a dishonest employee, computer problems, or something else requiring your attention.
  • Your asked to help catch the crook, verify the bank balance, or do something else, but the solution always requires you to withdraw money from your account.
  • A supposed bank representative, sometimes in uniform, comes to verify the amount withdrawn from your bank. This person will often give you an official looking receipt for your money.

With the bank examiners scam, sometimes three or more people are involved. However, the common theme is that something is wrong with the bank account and the victim needs to withdraw cash to help solve the problem. The scam artist relies upon the victim’s sense of civic duty and honesty. The acting can be extremely persuasive. The bank examiner scam relies entirely upon the victim’s ignorance of correct banking procedures. It is important to realize that you will never be contacted by the bank and asked to verify your account balance. In the unlikely event that a legitimate bank had problems with a dishonest employee, computers, or the accounting system, the bank certainly would not want to tell its customers or involve them in the scandal. The bank would be much more likely to call a law-enforcement agency or an accounting firm. Law-enforcement agencies are perfectly able to provide decoys without involving bank customers. Bank examiners do exist but they work for large accounting firms, state agencies, or the federal government. They also work directly with bank officials, not customers. An ordinary bank customer would probably never come in contact with a bank examiner.

If you receive a call concerning your bank account, request that the information be provided to you in writing. If the caller insists that the matter must be cleared up immediately, request the name of the caller’s supervisor. Then hang up and call the bank back after verifying the bank’s number from the telephone book or your statement. Ask for the name of the person you were told was the supervisor. It is important to look up and independently verify the telephone number of the bank because if you call the number given you by the scam artist there is nothing to prevent them from pretending that you are calling the bank. If you have a question about the bank’s contact either go directly to the bank and talk to the manager or ask a friend or relative to go for you. Never withdraw money from your bank account at the request of a stranger.

As in many other scams, scam artist will attempt to get the victim involved without giving the person time to think things over. They realize that the more time the victim has, the less likely they will cooperate. The scam artist may appear very upset, offended, or even angry at the suggestion that you should verify his or her credentials. They will often have the same reaction to the suggestion that you call a friend or other adviser.

Sometimes, the scam artists will impersonate government agencies (real or fictitious) and attempt to steal money from unsuspecting victims. In one kind of scam, a caller contacts a scam victim and pretends to be from the “state scam enforcement agency.”

Ruth lost $2,500 in a business opportunity scam. A few weeks later, she received a call from a woman who identified herself as working for the state scam enforcement agency. The woman explained that her agency assisted scam victims in recovering their lost money. Ruth was immediately very interested. “How did you get my name?” asked Ruth. The woman explained that her agency recently shut down a local scamming operation and recovered the list of victims. They were in the process of contacting the victims to assist them in recovering their lost funds. Ruth was still very upset about losing the money. “What are the chances that you can get my money back?” she asked.

The women explained the program in detail. Ruth asked a number of questions but the woman had answers for all of them. Finally, the woman asked Ruth to verify her credit card number. The woman read the number and asked if that was correct. Ruth was very surprised to hear her own credit card number. The woman mentioned that there was a nominal processing fee and would be all right to charge a fee to her credit card. Ruth agreed and the conversation soon ended. When Ruth received her credit card bill she realized she had been victimized again.

The recovery of money in these types of scams is contingent on the payment of some type of registration or processing fee. Sometimes the representative will encourage you to pay a larger fee to “expedite” the recovery. Payment for the service is requested immediately by credit card or a courier is sent to pick up a check. It is important to realize that scam artists commonly sell the lists of their victims to other scam artists and these lists often contain considerable personal information, such as credit card numbers and other financial information. The scam artists use a variety of misrepresentations to add credibility to their solicitation. You may be told that you will be placed at the top of the list for reimbursement from the previous scam. The scam artists may also charge large fees to provide information that could be obtained free of charge from nonprofit consumer protection agencies and government agencies.

Under the federal Telemarketing Sales Rule it is illegal for recovery room operators to receive payment until seven business days after you receive the recovered money or other lost item. National, state and local consumer advocacy agencies and legitimate nonprofit consumer assistance organizations do not charge for their services. It is also very unlikely that a legitimate assistance organization will call fraud victims directly.

You should follow many of the same steps to protect yourself as you would with the bank examiners scam. Individuals who claim to represent these organizations should be investigated. The easiest way to do this is to request the exact name of their organization and then look up the organization in the telephone book where government agencies are listed. Call the government agency or organization and ask them to send information about their operations and verify that the individual who called you actually works for the organization. The chances are that you will be unable to find the name of the organization in the telephone book.

Protect yourself by:

  • Never giving bank account information to someone over the phone.
  • Realizing that the banks do not to enlist their customers in attempting to catch crooks or solve accounting problems.
  • Never withdrawing cash from your bank account or an ATM at the request of a stranger.
  • Calling the bank directly to verify any contact or verifying the employment of any individual who claims to represent a nonprofit organization or government agency. You can also investigate the bank or company by calling the local consumer protection agency (usually affiliated with the state Attorney General’s office).
  • Never allowing strangers to come into your home while you are alone.
  • Being skeptical of people who offer to recover money, merchandise, or prizes for an advance fee.
  • Obtaining a detailed description in writing of the specific services offered by recovery organization and any charges.

Monday, September 15, 2008

#8. Charity scams

Not content with stealing money and financial information through “product sales” and investment schemes, scam artists also impersonate charitable organizations.

Every year when the circus came to town Frank got the same phone call. The caller identified himself as a representing the Friends of the City Police. The man would always ask him if he wanted to support his local police department. Frank didn’t want to seem uncooperative, so he always agreed to listen to the sales pitch. The man explained that the Friends of the City Police were raising money to take underprivileged children to the circus. He always got Frank to sponsor the five children. Frank felt good about sponsoring underprivileged children to go to the circus since he enjoyed going to the circus when he was young. Frank didn’t have time to go to the circus himself but he always felt that sometime he would like go with the children.

One day, Frank attended a block awareness program in his neighborhood put on by the local police department. After the short meeting, he found himself talking to the police officer and mentioned that every year he gave money to the friends of the City police to take underprivileged children to circus. He was very surprised and upset when the police officer told him that not only was the organization not affiliated with the police department, but that it was a well-known phony charity they had been trying to prosecute for years. Frank was a victim of charity scam.

Elements of the charity scam:

  • Unsolicited contacts concerning donations to an unfamiliar charity.
  • Emotional or hard sell appeals.
  • Names deceptively similar to well-known charities.
  • Failure to provide background information concerning salaries and other expenses of the charity.

Older people are targeted for solicitation by charity scams because people over 75 give the highest percentage of their income to charity of any age group. Many charity scams use names either associated with legitimate organizations or deceptively similar to legitimate charities. The “Friends of the City Police” is a classic example. Other scams might use names like “North American Cancer Society” or “Open-Air Preservation Society.” There is seemingly no end to the inventive types of scams in the name of charity.

The important fact to know about any charity is the percentage of the funds raised that go for the charitable purpose. Some “charities” spend almost all of their money in fund-raising, giving only a very small percentage to the charitable purpose. In a charity scam none of the money goes to the charitable purpose. As in the example above, the “Friends of the City Police” may not actually be taking any children to the circus and may not be affiliated with the City police at all.

In contrast, there are legitimate charities where 100% of the funds raised goes to the charitable purpose. Any legitimate charity would be glad to provide you with the information concerning the percentage of funds spent in all the various activities. Even if the amount given his very small, it is absolutely important to know where your money is going. The real tragedy is that the charity scams siphon money away from legitimate charities.

Always ask for written information about the charity and its operations before giving. Never respond to charitable requests over the telephone. If you’re truly interested in the cause, and ask the person to send you information in writing about the charity, including the names of the officers and directors, financial information, and affiliated organizations or sponsors. Real charities will bend over backward to provide you with adequate information and may even give you an opportunity to volunteer your time.

Charity scams may make their appeal by charging a high price for an ordinary item indicating that the extra amount paid will go to support the charity. Often the only charity is the pocket of the fundraiser. Sometimes the appeals for contributions will be deceptively similar to an ordinary bill or invoice. The expectation being that the unwary victim will pay the bill without thinking. Many charity scams use high-pressure tactics, telling “heart-wrenching” stories to make you feel bad about not contributing to their charity. If you ask for time to consider making the contribution, the scam artist will quickly move on to another victim.

Many states require charitable or organizations to be registered with the Secretary of State’s office or other agency in order to do business in the state. At the very least, before donating to any charity you should find out whether the charity is registered and allowed to do business in the state. Never make a charitable contribution to an individual. Charitable contributions should be made by check payable to the charity. Particularly when giving large sums of money, it is important to verify that the supposed charity is a recognized non-profit charitable organization by the Internal Revenue Service so that your contributions are tax deductible.

Protect yourself by:

  • Insisting that all charitable solicitations be made in writing.
  • Verifying whether or not the charity is registered or listed with the Secretary of State’s office in your state or other administrative agency.
  • Making all contributions by check made out to the charity not an individual.
  • Requiring the charity to give you information concerning the percentage of contributions that go to the charitable purpose, names of the officers and directors, past history, and other pertinent information.
  • Verifying the tax status of the organization.
  • Reporting any violations to appropriate governmental enforcement agencies.

Monday, September 1, 2008

#7. Trusts and estate planning scams

Scam artists play on the fears of senior citizens by using trusts and estate planning scams.

Ruth’s husband, Richard, was recovering from bypass surgery. Richard had worked hard all of his life and they recently began discussing retirement. However, Ruth tried to get Richard to write a will without much success. She saw an ad on television about a “living trust” and called the “800” number. The woman on the phone said that she would make an appointment for their “certified trust adviser” to come to their home. Ruth wasn’t sure she wanted a salesperson to come to her home, but the woman on the phone assured her that all of their representatives were estate planning experts.

Two days later, Ruth and Richard received a visit from the estate planner. He seemed nice but his presentation went on and on. After an hour, Ruth was feeling quite tired and wished he would leave. She was afraid of being rude so she continued to listen. The man explained the virtues of a living trust over a simple will. Finally, Ruth and Richard agreed to purchase the entire package. They signed the documents and the man left with their check. Ruth and Richard were certain that the man had told them that the trust would save them many times its cost and taxes alone, not to mention the savings in probate costs. Among the documents that they signed were some “powers of attorney.” Ruth distinctly remembered the man saying that the power of attorney would help her take care of her husband’s affairs if her husband became incapacitated.

A few months later, Richard ended up in the hospital on life-support. When Ruth tried to use the power of attorney to the hospital refuse to honor it. The hospital representative explained that it was the wrong kind of document and was not legal in their state. He told Ruth she need to talk to her attorney. Ruth took all of the documents and visited an attorney who specialized in estate planning. After reviewing the documents, the attorney told Ruth that she needed a special kind of power of attorney to continue to be effective since Richard was incapacitated. The power of attorney sold by the estate planning expert did not have the proper language to be effective in their state. In fact, none of the documents were effective. The attorney offered to redraft all of the documents for a price that turned out to be much less than the estate planning expert had charged them. However, the attorney explained that since Richard was already incapacitated, he could not sign of power of attorney. Ruth realized she had been severely damaged by the misrepresentations of the so-called “estate planning expert.”

Elements of the living trust scam:

  • Complete estate planning packages for a set fee.
  • Work to be done by “certified estate planners.”
  • The so-called estate planners spend more time selling you the product than they do asking questions about what you really have and need.
  • Representations of substantial tax savings from a “one size fits all” product.
  • High pressure tactics to pay the fee and sign the documents without time to consult with business professionals.

Although a living trust can be a legitimate estate planning device, salespeople using scare tactics and misrepresentations target senior citizens with worthless or at best inadequate programs. These individuals often represent themselves as being “certified trust advisers” or “estate planning experts” when they may have no qualifications at all. There are no government agencies that “certify” estate planning experts. The bar associations of some states do certify attorneys as tax experts or experts in trust and estates or probate but any other references to “certification” should be suspect.

Living trust salespeople use high-pressure tactics to sell living trust packages costing $1,000 or more. Before purchasing such a package, the consumer would be well advised to consult with a qualified attorney. Tax laws, including estate tax laws, change constantly and the “one-size-fits-all” living trust package may do more harm than good. Unscrupulous salespeople may emphasize and over-inflate the cost of consulting an attorney, while at the same time extolling the virtues of their particular package in avoiding both legal and probate costs.

Many estate planning scams are based upon the premise that it is best to avoid probate at any cost. Probate is nothing more than the legal orderly way of transferring property from one generation to another. Historically, probate got a bad name from the practice of probate attorneys of charging a percentage of the overall value of the estate as a fee. This practice has mostly disappeared since the passing of the Uniform Probate Code beginning in the early 1970s. Under current probate code practice, attorneys are required to submit their requests for attorney’s fees for court approval before being paid by the estate. The other concern, which gave probate of bad name, was the fear of paying excessive estate taxes. The amount of an estate exempt from federal taxes has been increasing over the years. Before purchasing a living trust package or any other supposed estate planning device, it is very important to calculate your gross estate to determine whether it is subject to tax at all.

You should certainly check the credentials and qualifications of any supposed estate planner, including attorneys and insurance salesmen. It is important that an attorney be admitted to practice law in the state where you are located.

Beware that some trust preparers ask for fees in advance. You may not want to do business this way. Be sure and determine whether or not the estate planner has a refund policy. Make sure you get the refund policy in writing. Providing estate planning services may also serve as a “front” for sales of insurance or annuities.

Any estate plan should reflect your wishes and not those of an adviser or estate planning expert. You should also be aware that many states have strict laws concerning the validity of estate planning documents. Often the documents must be signed and notarized in a particular way to be valid. Make sure the person doing your estate planning understands your local requirements and follows the legal rules.

Protect yourself by:

  • Getting competent legal and accounting advice before beginning an estate plan.
  • Carefully checking the credentials and qualifications of any supposed estate planner.
  • Raising questions when preparers ask for fees in advance.
  • Getting a complete proposal in writing including any refund policy.
  • Verifying all tax representations from a competent tax professional.