INDIVIDUAL CHARACTERISTICS, FINANCIAL LITERACY AND ABILITY IN DETECTING INVESTMENT SCAMS

This study aims to explore important indicators applicable for the early detection of investment scams and to investigate the effect of age, education and financial literacy on the ability to detect investment scams. Data were collected using a questionnaire survey with respondents in Semarang, Indonesia. A total of 311 respondents completed the questionnaires, for a 62.2% response rate, but only 304 questionnaires were usable. Confirmatory factor analysis was used to verify the indicators of investment scams, and a regression model was then employed to analyze the data. The findings show five main indicators applicable for early detection of investment scams: a) investments with unreasonably-high returns, b) investment involving salespeople that tend to force potential investors to make an immediate decision about the investment, c) investments without reasonable underlying cores of business, in accordance with principles of fairness and prudence in financial investment sectors, d) investments with no clear explanation on how the investment funds are managed, and e) investments without any information on the structure of management, ownership, and business, and the address of the companies. Finally, the finding shows that the level of individual financial literacy positively affects the ability to detect investment scams. However, age and education do not affect the ability to detect investment scams.


INTRODUCTION
Investment is a financial activity where funds are invested in a certain project with the hope of generating a positive return, maintaining or increasing its value (Gitman and Joehnk, 2011). Consequently, public literacy improved from 21.84% to 29.66%, and increased access to financial services and products (financial inclusion) from 59.74% to 67.82%.
However, more specifically, the literacy rate for investment / capital market products is Investment scams are fraudulent activities done by tricking investors into devoting their money in special promising projects (corporations, investment funds, real estate projects, or insurance policies), which, in reality does not exist (Reurink, 2016).
Thus, investment fraud is conducted by misleading investors (victims) by using false information for the purpose of monetary gain (Beals, DeLiema and Deevy, 2015). In other words, investment scams occur when an investor (victim) is offered a very profitable Jurnal Akuntansi dan Auditing Volume 15/No. 1 Tahun 2018 : 91-114 93 investment project, but the investment is based on false information so that the investor is deceived and suffers from a financial loss. Investment fraud tends to increase due to the high-profit offer without any explanation of investment risk.
A low understanding of investment risk also indicates that the orientation of Indonesian society is still limited to profitable returns, regardless of their risk.  (Goel and Gangolly, 2012;Kanapickienė and Grundienė, 2015;Tan, Chapple and Walsh, 2015), and methods to prevent corruption (Dyck, Morse and Zingales, 2010;Mohamed and Handley-Schachelor, 2014;Othman et al., 2015).
So far it is not easy to find research related to investment scams. Unfortunately, the study of investment fraud is more attributed to the nature of investment frauds, such as the Ponzi) (Wilkins, Acuff and Hermanson, 2012), the relationship between risk aversion and investment frauds in the form of Ponzi scheme (Tennant, 2011a).
Other research suggests that Investors are more careful in accepting investment offers by reviewing all information related to the offer (Melissa S. Baucus and Mitteness, 2016). Other studies tends to be dominated by the use of statistical anomalies (Bolton and Hand, 2002;Drew and Drew, 2010); bias ratio and sharpe ratio (Sikka and Willmott, 1995;Clauss, Roncalli and Weisang, 2015;King and van Vuuren, 2016) as a method of detecting investment frauds.
Nevertheless, the use of statistical anomalies and sharpe ratios is difficult for ordinary people and is considered insufficient to detect investment scams.

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Such studies tend to ignore aspects of behavior related to investment scams (Drew and Drew, 2010). Behavioral aspects are important to note because behavioral abnormalities are related to unusual behavior patterns (such as sudden changes in person's lifestyle and life beyond their normal ability) can influence decisions to commit investment scams (Drew and Drew, 2010).
Therefore, psychological aspects are seen as important in understanding investment scams (Lewis, 2012), especially those related to individual characteristics such as age, education and financial literacy levels.
Other studies on investment scams are associated with symptoms to identify investment scams (especially ponzi scheme).
The Ponzi scheme is an investment fraud where payment of returns given to incoming investors is derived from the contributions of newly joined investors (Kaminski, Wetzel and Guan, 2004). Investment fraud with this scheme will collapse when it does not Madoff case (Gregoriou, 2009), and in Indonesia, Erni Fashion case (Soegiono, Haryani and Pranoto, 2011) and investment frauds of BPR Banks (Chariri and Meiranto, 2017).

HYPOTHESIS DEVELOPMENT
Studies on investment scams cannot be separated from Theory of Planned Behavior (Ajzen, 1991) and Attribution Theory (Heider, 1958). The theory of planned behavior explains the underlying reasons for individual behavior. In relation to investment scams, this theory provides an explanation of the factors that drive investors to get involved in investment scams as victims.
The main factor of individual behavior is the individual's intentions towards a particular behavior. The intention to behave is influenced by three components namely (Ajzen, 1991) The second theory is the attribution theory developed by (Heider, 1958 (Shadel and Pak, 2017), and financial literacy (Clauss et al. 2009). Therefore, internal attribution (such as education, age, and financial literacy) which is previously able to attract successful individuals in investments will encourage such individuals to re-invest in similar investment areas in the future even if the investment ultimately fails to pay.

Investment Scams
Borrowing the arguments of attribution theory, the experience of past success is the reason that encourages one to do the same in the future. An educated person tends to believe that past successes are a foothold for action in the future regardless of the risk of failure. Individuals who are more educated tend to be fooled by investment fraud because previously the individual has been successful in doing similar investments. This condition is used by fraudsters as a strategy in running investment scams. Several studies have confirmed the influence of investor education on early detection of investment scams. For example, (Wilkins, Acuff and Hermanson, 2012) found that most victims of investment scams were educated.
Other survey results show that 62.1% of victims of investment scams have been educated in college for more than 4 years (Shadel and Pak, 2017). In addition, the FCA study in 2014 also showed that the segment of highly educated investors has 2.5 times greater vulnerability to victims of investment scams (Graham, no date). Negative relationships between education and early detection of investment scams can occur because investors with higher education perceive themselves to have better investment knowledge than investors with low education (Graham, no date). In other words, more educated investors than other investors have optimism bias, ie the tendency of individuals to feel confident that they have a lower probability than others to be victims of adverse events (Fletcher and Pessanha, no date). Thus, more educated investors will make good investment decisions if not affected by bias (Iqbal, 2015 unprofessional investors more easily believe in the advice of others who lure high returns (Shiller, 1984 (Danes and Hira, 1987;Markovich and DeVaney, 1997;Chen and Volpe, 2002;Murphy, 2005;Thaden and Rookey, 2005).
Furthermore, Table 3 shows that financial literacy has a positive effect on the ability to detect investment scams.     with the arguments that victims of investment scams have a higher desire to take risks than those who are not victims (Nolasco, Vaughn and del Carmen, 2013;Melissa S Baucus and Mitteness, 2016). In fact, the reason for people being deceived by investment scams is that they have a high tolerance for risk (Tennant, 2011a).  (Baker and Faulkner, 2003;Shover, Coffey and Hobbs, 2003;Shover, Coffey and Sanders, 2004;Frankel, 2012;Lewis, 2012), which reveal that investment certain "investment opportunities" that are actually bulging (see (Baker and Faulkner, 2003;Shover, Coffey and Hobbs, 2003;Shover, Coffey and Sanders, 2004). Fraudsters can also recruit brokers or registered dealers to advertise the investment to their clients (Reurink, 2016). In other cases, fraudsters utilise social networks, which quickly arouse interest in word of mouth deception (Baker and Faulkner, 2003;Nash, Bouchard and Malm, 2013).
In addition, the finding shows that The finding is consistent with one resulted from phenomenology study on investment frauds (Chariri and Meiranto, 2017 These results are inconsistent with previous findings (Agarwal et al., 2009) suggesting that financial decisionmaking ability peaks at age 50 and declines during retirement age. (Gamble et al., 2015) show that the decline in cognition due to age causes decreased financial literacy so one needs to seek help in managing finances. Our finding is essentially not different from the previous findings, which resulted in contradictory findings. The most cited first study of investment scams found that older consumers were three times less likely to be victims of frauds than younger consumers (Titus, Heinzelmann and Boyle, 1995). Two studies of the Federal Trade Commission also found that adults were more likely to be victims of frauds (Anderson, 2004(Anderson, , 2007