Mind your parents

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By Jennifer Openshaw

NEW YORK (MarketWatch) -- You can never be too careful when getting financial advice from anyone other than your most trusted advisers, and the story of my friend Margo's mother reveals that all too clearly.

Over dinner recently, Margo told me about some pricey scams to which her mother has fallen prey.

"Mom has this handyman who fixes things around her house. He seemed very helpful. We all trusted him. Then one day he says to her: 'I know about this Web site. It can make you a millionaire,'" Margo said.

"Now, my mother is not stupid. She was probably thinking: 'I could always use more money, I don't understand the stock market, my savings account earns zip, why not give it a try?' So she sent in a check for $500."

What did the Web site recommend? "It said she should invest in Iraqi dinars," my friend said, still amazed at the concept.

The handyman recommended this 77-year-old grandmother of seven invest her retirement money in the currency of a nation whose financial condition is so volatile it didn't even make it on to the World Economic Forum's 2009 list of the most economically unstable nations on the planet (Chad, Zimbabwe, and Burundi are the three worst).

Kind of takes your breath away. See Marshall Loeb column on avoiding elder abuse.

Ironically, her asset value should have gone up, thanks to improved stability in Iraq over the past year. But by the time Margo discovered her mother's situation, excessive foreign exchange fees had whittled the balance down to $250 in U.S. dollars.

"Mom kept saying, 'It's approved by the U.S. Treasury,' Margo said, exasperated. "And I kept telling her, 'What does that have to do with anything?'"

The Web site in question has no information about its management or ownership. I did a little research and found there are countless online trading businesses, each offering widely varying exchange rates. It was impossible to ascertain which ones were legitimate and which ones were fly-by-night outfits.

Smart people get snared by scams

Margo was right: Her mother isn't stupid. But like millions of people, she has no experience or education in financial investments. The dinar story was just one in a series of bad money decisions she had made.

Once she invested in annuities for her grandchildren -- they led to a nice fee for the investment firm but not much left for the grandchildren.

Another time she gave her jobless grandson, who lived in her basement, her credit card to make a single purchase for her, only to find out later he had racked up $25,000 in unauthorized purchases such as TVs and expensive food items.

"He was grilling Omaha steaks on a Hibachi grill out of her basement," Margo said, with a sigh.

Why does this happen to some people? Lack of basic fiscal sense is one reason, but depression, loneliness, and the absence of a good personal support system are often additional factors.