From perception to loss: a two-phase approach to understanding financial fraud

Purpose Financial fraud remains a pervasive threat to consumer well-being and market stability. Despite growing research interest, significant gaps persist in understanding how financial knowledge and education influence individuals' vulnerability to fraud. This study contributes to the literature by providing a robust assessment of the protective roles of financial capability, specifically distinguishing between perceived targeting and actual financial loss. Design/methodology/approach Drawing on nationally representative data from the 2024 National Financial Capability Study, this study employs logistic regression analyses to examine how objective and subjective financial knowledge, along with formal financial education, relate to two distinct fraud-related outcomes. To ensure the robustness of our findings and address potential sample selection bias, we also estimated a bivariate probit model with sample selection. Findings Higher levels of objective financial knowledge are significantly associated with a reduced likelihood of financial loss, whereas subjective financial knowledge shows no consistent effect. Formal financial education is positively associated with perceived targeting, suggesting greater fraud awareness, but only high school-level instruction is linked to reduced financial loss. Subsample analyses of individuals targeted by fraud further support the protective effect of objective financial knowledge. Additionally, demographic variables such as race, income, and household structure significantly influence fraud-related outcomes. Research limitations/implications This study has a few important limitations. The dataset does not include detailed contextual information on fraud incidents, which may somewhat constrain the scope of interpretation. The cross-sectional design restricts causal interpretation, and the relatively small subsample of fraud-targeted individuals may reduce the robustness and generalizability of some results. Future research using richer data and longitudinal methods can further strengthen these findings. Practical implications The results highlight the value of early, targeted financial education programs that build consumer capability and reduce vulnerability to fraud. Social implications The findings highlight the societal value of early and accessible financial education. By equipping individuals – especially young people – with foundational financial knowledge, society can build stronger collective resilience against fraud, reduce vulnerability, and promote financial inclusion. Broad-based education can also increase public awareness of fraudulent activities, contributing to a more informed and vigilant population. Originality/value This study introduces a dual-outcome framework that captures both the psychological (perceived targeting) and material (financial loss) dimensions of fraud victimization. The findings underscore the differentiated roles of financial knowledge and education in shaping consumer awareness and resilience.