Consumer fraud victimization and financial well-being

Using US household panel data, we provide evidence of a strong negative association between consumer fraud victimization and individuals' perception of their financial well-being. We show that this effect is homogenous among the population and mainly stems from victimization through misrepresentation of information as well as misusage of money by third parties. We disentangle two potential channels through which victimization might reduce perceived financial well-being: psychological consequences (loss of confidence in financial matters) and economic consequences (decrease in net wealth). Our results show that fraud is more negatively associated with a loss in individuals' confidence in financial matters than with declines in their net worth. Our findings suggest that people tend to doubt their abilities to handle financial matters after having fallen prey to fraud, which in turn carries major implications for subsequent financial decision making.