Cryptocurrencies and other digital assets have surged into the mainstream over recent years. Despite the hype – or perhaps because of it – investing in them carries serious risks. Last year, Australians lost an astounding A$2.74 billion to scams, with investment scams leading the charge at $1.3 billion. Cryptocurrency investment scams are a significant part of this problem.
Many Australians still don’t know how to safely purchase and store cryptocurrencies and non-fungible tokens (NFTs), creating a prime opportunity for scammers. Through engaging directly with Australian crypto investors, our recently published research aimed to identify who is most vulnerable to such scams and the broader sector vulnerabilities.
Two Groups Most at Risk
Our study surveyed 745 Australian adults who had purchased cryptocurrencies or NFTs. Participants came from a variety of ages, socioeconomic, educational, and ethnic backgrounds. Surprisingly, we found two distinct groups to be most at risk of falling prey to crypto scams.
1. Socioeconomically Disadvantaged Group
The first group had characteristics of socioeconomic disadvantage. This included being female, identifying as Indigenous, having only a high-school education or lower, working part-time or casual hours, or speaking a language other than English at home.
Key vulnerabilities:
- Influence of Social Media Hype: This group was often swayed by the hype around crypto investments on social media.
- Lack of Financial and IT Literacy: Many lacked the necessary financial and technological understanding to navigate the crypto space safely.
Notable Findings:
- Indigenous Australians were the most vulnerable to losing their cryptocurrency or NFT investments.
- Female participants were more susceptible to media hype but tended to lack basic crypto literacy.
- Participants who spoke English as a second language had poorer knowledge about digital asset security and interest calculation.
2. Socioeconomically Advantaged Group
Surprisingly, the second group at risk came from an advantaged socioeconomic background. These were non-Indigenous, university-educated individuals, employed full-time, or homeowners with a mortgage. Despite having sufficient financial and IT literacy, this group was also prone to scams.
Key vulnerability:
- Overconfidence: Many in this group believed they were too savvy to fall victim to crypto scams. This overconfidence actually increased their risk.
Addressing the Risk
To mitigate these risks, targeted education is essential. Our research found that one of the biggest vulnerabilities for Australians is insufficient financial and technological literacy, coupled with security concerns and unsolicited advice.
Educational Gaps:
- Social Media as a Primary Learning Source: Many participants learned about cryptocurrencies and NFTs from social media, which is often rife with misinformation.
- Lack of Reliable Educational Resources: Schools were the last place participants received education on these topics.
Recommendations for Better Education
To better equip Australians, the education system needs to address the gaps in financial and technological literacy regarding cryptocurrencies and NFTs.
Proposed Measures:
- Incorporate Financial Dilemmas in Education: Students should engage with what financial literacy researcher Dr Carly Sawatzki calls “financial dilemmas.” This helps them critically evaluate what they hear and see about cryptocurrencies and NFTs on social media.
- Teach Safe Storage Practices: Australians need to learn how to securely store their crypto assets.
- Understand Tax Implications: Education on the tax implications of buying and selling crypto investments is crucial.
- Calculate Investment Interest: Teaching how to calculate interest for investment decision-making is essential.
- Seek Independent Professional Advice: Encourage seeking advice from independent professionals rather than relying on social media or unsolicited sources.
Real-Life Examples and Stories
One participant, a part-time worker named Jane, shared how she fell victim to a crypto scam. Influenced by social media hype, she invested in a cryptocurrency that promised high returns. Unfortunately, she lacked the financial literacy to recognise the red flags and lost her entire investment. Jane’s story highlights the importance of proper education and awareness.
Conclusion
Crypto investments offer great potential but come with significant risks. Both socioeconomically disadvantaged and advantaged groups can fall victim to scams due to a lack of literacy or overconfidence. By addressing these educational gaps and promoting awareness, we can better protect Australians from crypto scams.
Think you’re immune to crypto scams? You might be more at risk than you realise.
