Instead

16– Fraud, finances, and finding balance, with Dr. Chad Albrecht | Day 65

May 15, 2020 Utah State University Office of Research Episode 16
Instead
16– Fraud, finances, and finding balance, with Dr. Chad Albrecht | Day 65
Show Notes Transcript Chapter Markers

The stock market has plunged and 36 million Americans have filed for unemployment. In this episode of Instead, USU Huntsman School of Business researcher Dr. Chad Albrecht helps us connect the dots between the COVID-19 pandemic and the Great Depression. We also explore the intricate world of financial fraud across cultures, and some empowering words about your personal finances. 

Wyatt: [00:00:00] You're trying to log into your visa card app, but you're frustrated it's taking too long and eventually you just have to admit to defeat and tap the button labeled. I forgot my password. My name is Wyatt Traughber. You could be missing the days when a password could be a word, but you are listening to this. Instead, a podcast where I ask experts questions, because it's easier than staying in a tab long enough to read an entire article.

I'm going to need you to get your Argyle socks on and to lace up your leather Oxfords. Because today we're stepping into the world of finance. You'll hear what the current financial situation has in common with the great depression. More importantly, you'll hear what makes them different. You'll also hear about financial fraud, how it happens in cultures around the world.

And right here in Utah, we'll also talk about personal finance, but don't worry. There's no lecturing. You'll just be empowered to figure out what works best for you. And you'll also hear some anecdotes about what not to do, taking us on this journey is Utah state universities, Dr. Chad Albrecht, full professor in the marketing and strategy department and director of the MBA program, all in the Huntsman school of business.

My favorite thing about this interview is that Dr. Albrecht shows us the power of data, but also the importance of knowing the limits of that data. My least favorite thing about this interview is I trusted zoom to record my audio. Things got glitchy. Luckily I had Dr. Albrecht set up a backup on his end on my end.

When I start to cut out, voiceover Wyatt will just pop in and connect the dots. All right. Here's my conversation with Dr. Chad Albrecht

So you said that you love it, your job, because you feel like you are paid to learn. How has your learning changed or what are you learning now that we are all in this weird COVID 19 lockdown not locked down situation. 

Chad Albrecht: [00:01:58] Yeah. So it's been interesting and I kind of separated into these different silos, how COVID-19 has hit us.

Uh, you know, there's obviously my, my personal life, how it's affected my family and my children. There's my university life, how it's affected the university setting and my interaction with students and colleagues up here. And then there's the. What I kind of consider like the finance world and the economic world.

And, um, it's been interesting to see how COVID has hit the financial markets, how it's hit the economy, how it's impacting people's jobs and how it's impacting businesses around the world. It's also an interesting for me to see the response from the government and others. It's been really interesting.

It's certainly something that I have never. Scene. I was very much involved, like financially involved and working full time. When the 2001 stock market burst the.com bubble burst. I was also involved in 2008, 2009. When we went through that recession, the great recession they call it. And this is so different, right?

This has been extremely. Impactful for everyone. I looked at the numbers this morning. In fact, the unemployment numbers came out this morning, which was like an additional 3 million people claimed on unemployment benefits. So now we're at something like 33 million people in the United States who have claimed unemployment benefits.

Now that's a little bit misleading because some of those people have just been furloughed or let go during the quarantine time period. And so they apply for unemployment and then they'll go back to their jobs. So it's not a true 33 million, but. We haven't seen those numbers for since, since the great depression, right?

Since my grandmother was my age.

Wyatt: [00:03:39] I saw the headline of an article, but I didn't read it. And it was essentially why isn't like the great depression. And I think connecting what's happening out to the great depression as an actual lead that people make in our heads, especially people like me who try not to think about the finance world, petty, you feel about that comparison.

Chad Albrecht: [00:03:56] So I, I think it's, I think it's about comparison and that the economy has gone through a tremendous shock. It did, then it has today. Now having said that in the 1940s, we didn't have very many late 1930s. We didn't, we didn't have a real safety net. Right. In the 1930s, we didn't have the government that could come in and provide all these unemployment benefits.

And we didn't have the safety net that the government has today. And so we're not seeing these long lines of people waiting for food. It hasn't hit us as directly and in an automatic kind of impact way that it hit them back then, because we've got a cushion, we've got a safety net that protects a lot of us.

I do think that the shock to the economy is very similar. I think, uh, people losing jobs for those that have lost jobs, it's an absolute reality that this is extremely difficult. And I don't want to minimize what people are going through today simply because there is a, uh, there's, there's a better safety net than we had had in the past.

So I do think it is natural for everyone to go back and kind of compare that. Um, I think it's a valid comparison, but I think we have a lot of benefits today that we didn't have back then. You know, Warren buffet is the CEO of Berkshire Hathaway. That is the end. And he, at one time was the richest person in the world because of his investments.

They call him the Oracle of Omaha, the best investor in the world. He turns 80 this, or excuse me, he turns 90, uh, later this summer, I believe in August. So he's seen a lot go on throughout the world over the last 60, 70 years while he's been an active investor, but he said, uh, so he gave his yearly annual shareholders meeting speech.

Last Saturday. And I w it was four and a half hours long, and I watched about three hours of it. Um, and then I had to go take care of kids, but, um, he said, if you could choose to live anywhere in the world under earning any circumstances, 99.9% of the people out there would choose to live in America today.

And I think, and again, I'm paraphrasing that. So if I slaughtered what he said, I apologize. Uh, basically he was saying, if you could pick any time in the world to live and anywhere to live, you'd pick the United States today, simply because we have so many opportunities. We have so many safety nets. We have so many opportunities for learning, for growth, for education, and to focus and pursue our passions, to focus on what we enjoy, what we like to contribute the way we want to, to society.

And I think that's valid, right? I think if you go back through the history of the world for the vast majority of the people, we have more opportunities today than we've ever had in the past. 

Wyatt: [00:06:34] I mean, I don't have like a greater understanding, but it seems like the great depression, the recession were caused by things happening inside the financial system and COVID-19 is happening to the financial system.

How does that change things? 

Chad Albrecht: [00:06:50] This is an external factor, which has made a lot of people more optimistic than they would be otherwise that this recession that we're experiencing right now as a result of COVID was the result of COVID. It's not because the financial. Underlining pinnings of the economy were falling apart.

Uh, probably the best thing to compare it to it'd be like September 11th, right? It was an external factor that happened. And then the markets and the economy reacted negatively to that, especially within certain industries, right. The airline industry right now has been hit. Really hard because of COVID-19.

But, but people believe these external things like COVID September 11th, that we will be able to fix those. And the economy will bounce back really quickly, which creates kind of an, a B shaped recovery. Right. The markets go down bottom and then go back up. But, but every expert's different, every economist is different.

I've seen reports of people saying, it'll be like the Nike swoosh. I've heard, seen people say, it's going to be like a, w it's gonna go down, up, down, and then back up, like, no one knows, no one knows that, but. I do like the thought. And I think there's general consensus out there that people would rather have kind of a single event, external factor that hits the markets and they economy versus something that's fundamentally wrong with our economy.

That makes sense. And is causing the more, the interesting thing is the markets have not gone down very far. They bought them like, I think it was March 23rd, but middle end of March. And now they've slowly been going back up. Um, you know, the Dow, uh, Isn't down nearly as far as what we'd expect it to be for 33 million people out of work on unemployment.

And so there's a lot of people that are saying the market has almost decoupled from the economic reality. Now that the stock market is a leading indicator of what the economy will become like. Uh, which creates kind of an interesting situation, uh, but the economy and the stock market, which normally go hand in hand if they come back and kind of go back hand in hand.

And if the reality of the economy and the stock market become much closer together, either to the economy bouncing back quickly or the stock market coming down quickly. Because right now we have an economy that's really suffering and the markets have done. They've been surprisingly resilient. They've done really well.

Wyatt: [00:09:00] Yeah. Yeah. I'm going to choose to be comforted by that. That's my decision. Um, so this is different from the great depression and things have changed in the past 90 years. So I'm curious if there's any financial advice that stuck around, even though it's not really relevant to the time we're living in 

Chad Albrecht: [00:09:17] saving is just as important today as it was in the 1930s.

Right. And the things that help people on an individual level prepare. And survive and do those things that lead to a good life are just as relevant today as they were back. Then now there are a lot of differences, right? There's a lot more debt today, both at the individual level, both at the government level and at the business level.

So if you kind of analyze all three of those levels, there's a lot of debt. But I think, I think saving, I think being financially prepared, I think learning on what is your kind of touchstone and what makes you happy and how we contribute to society and how we contribute, where we work and how we contribute to the relationships that we have in our lives.

I think all of those are kind of timeless principles. I don't think there's one single path for everyone. I think people need to. Identify what kind of their touchstone is and find their path to pursuing those lifetime or those timeless principles throughout their lives. Uh, 

Wyatt: [00:10:15] so you research, uh, the financial markets, marketing strategies, entrepreneurship, and I just want you to tell me what you're doing when you're doing research.

Chad Albrecht: [00:10:27] Yeah. So my actual focus and, you know, they want all of us to become quote unquote, like a world renowned expert in a certain area. Right. And obviously it takes a lot to become a world renowned expert in anything. And so, but the, the area that I've chosen to focus on to try and pursue that goal is, is actually fraud and corruption.

So I have spent the last 20 years of my life. Understanding from a financial perspective, from a humanistic perspective, from a holistic perspective, what causes some organizations to become corrupt and other organizations to not become corrupt. I've also looked at, you know,  people. Both the how and the why people engage in financial statement, fraud and financial product, various forms, um, how that process takes place.

And then I've written a number of papers on it. I've written a couple books on it. Um, in fact, some of my research looks at, you know, how do you from the financial side and the accounting side, when there is a major fraud, how do they manipulate the financial statements? What are the common schemes they use, et cetera.

So I've focused on that. And then I've chosen to focus on this area where a lot of that intertwined, which is international corruption, international fraud, how fraud takes place, how otherwise ethical organization over time, a number of individuals can be, become involved in fraud. And a lot of times the really good people who find themselves in a bad situation and they don't know how to get out.

And so I've spent the last 15, 20 years of my life, trying to understand that process a little bit better. 

Wyatt: [00:11:56] Where do you get information and stories about fraud within companies? Are you interviewing people? Are you reading court documents, big data? 

Chad Albrecht: [00:12:04] Because that is an excellent question. And it's also probably the most difficult part of doing this line of research, right?

Because if I'm a big business and there's a lot of fraud going on in my organization, I usually don't want to go to the media or the shareholders or anyone else and say, Or, or a researcher and say, come look at all this fraud that's going on inside of my organization. See what you can learn from it, right.

It's not really a talking point when fraud happens, they immediately want to minimize it, control it and get rid of it as quickly as possible. And so anytime we're doing something like that and this type of research, it becomes pretty difficult to, to do the research part. So we kind of do a, and it all depends on the study we're doing, but we do a mix of everything you mentioned either earlier we do archival data.

Well, we go through and we pull data and we try and get these aggregate numbers to understand what's going on. We do a lot of interviewing. We do a lot of surveys. And when I say a survey, a lot of times it's how would you act in this situation? We do, uh, in fact, Several times I've gone through, I had to write, or I had to sign that non-disclosure document so that I wouldn't share any of the court documents with anyone else, but we've actually gone through court documents, depositions to understand what's happening.

That's what I actually did for my dissertation and my PhD program. And it was really interesting to kind of see how a lot of these different constructs would come up with in research. Then play out through these different. Methods and these different ways that you can kind of pull up that first layer of an organization, which is the perception that everyone has on an organization on the outside and try and see what's going on in the inner workings.

Um, anytime fraud takes place, it's usually, that's kind of the consequence of something deeper that's going on. For example, usually there's a lot of vices that take place. You know, if someone's addicted to drugs, they're going to do anything. They can to get money for those drugs. And so a lot of times end up committing fraud.

If someone's a gambler or someone has really high spending habits, almost uncontrollable spending habits, they suddenly have this intense pressure, this intense need, where they need to go out and find a way to get money, to support that habit that they have. And so, uh, I've seen a lot of situations where there's really good people.

These are people that otherwise would just be, you know, the ideal employee employee, like the perfect employee or someone that has been in PR the perfect employee for a number of years. And then they get involved in something that is just not good and something that's really difficult. And then they have to find a way to support that habit.

And the next thing they know, they're in jail, right? Or, or a lot of times we always say there is never a thing as a small fraud because small frauds don't exist. The only thing that exists are large frauds that start out small and eventually become large. So whenever we find a small fraud, we say, well, that was a big fraud in the making, if that makes sense.

So, uh, because. Because a lot of people start out really small. They have full intentions of paying back the money they're taking, and then it just gets bigger and bigger and bigger over time. And suddenly they find themselves in a situation where. Uh, they're in over their heads. They don't know where to go.

They don't know what to do. They only see one path forward and that's to keep going with what they're doing to keep up appearances, to keep up perceptions, to keep up, you know, the lifestyle that they're living to keep up with that, whatever habit they're involved then, and then, and then eventually it all comes.

Eventually it gets so large. That is discovered people find out what's going on, it's reported. And then the whole, you know, the whole house of cards, the whole castle collapses, unfortunately, and lives are ruined in the process, which is difficult. Both victims, a ton of victims get hurt. And even that the perpetrators, the perpetrators often get hurt as well, simply because a lot of times they're good people that got themselves in a bad situation.

Now fraud, of course, almost in every organization throughout the world. In fact, research shows that on the business side, roughly five to 7% of a company's annual revenues, that's not their profit. That's their annual revenue is lost to fraud of various forms. So if I'm a company that brings in a hundred million dollars, this company is losing five to $7 million a year on fraud.

That's in the United States. Now it depends on industry, but kind of across industries. That's kind of the broad number that researchers have come up with five to 7% of a company's annual revenue is lost to prod and some countries have a lot more fraud than other countries. And we're, we're kind of, yeah, go ahead.

Wyatt: [00:16:23] 

No, I was just going to say that's something I want to ask about. Cause I know that in Japan, like all the major companies have their stockholder meetings on the same day, because it makes it harder for them to be extorted by the UK. Um, so I'm just kind of curious if like that is somehow like a natural check.

On fraud in Japan, we don't have, and like what kind of checks exist and cultural things exist that make fraud more prevalent in some cultures. 

Chad Albrecht: [00:16:48] So culture plays a huge, a huge, huge, huge part. Okay. You know, a really fun activity to do. If you ever get some time, as you can go to it's called transparency international, and they're a nonprofit organization and you can get the corruption perception index.

So if you. If you type in, you know, just in Google or something, corruption, perception, index transparent. It's the international it'll come up and it lists almost every country. And it says what their level of corruption is. Places like Singapore and Scandinavia have very little corruption, Japan, very little corruption.

Right. And then the list goes down. Uh, the United States usually, right. It's between 15 and 25 with one being the best. And then I think it goes to like two, you know, 200 different countries and we're between 15 and 25. Your Scandinavian countries do early well, Switzerland, as well as Singapore does. Well, Japan does well, you get into some of the other country, you know, Chile does well.

That's kind of the bright spot of South America. Yeah. But a lot of areas in South America do really poorly and central America. And a lot of that has to do with the culture and what's accepted and culture plays a huge part. Right? What is ethical for us in the United States might be different than someone with a background from China.

And there's also. In addition to the culture, there's just kind of how the businesses are set up. So for example, if you look at South Korea, they have these giant organizations. Called chaebol organizations and there's 25 of them. And these chaebol organizations, they like run the South Korean economy. So one chaebol organization will have like Hondai or Samsung.

Uh, they they'll own the banks they'll own the industrial companies they'll own the construction companies, you know, this they own. And they're these huge portions of the economy basically. And their family runs. So, you know, so-and-so brings in their uncles, their cousins, their friends, and it's very family oriented.

And of course in that environment, you have a situation where fraud takes place all the time. Not necessarily because of the culture, but just because of the setup that they have, where you have. You know, the bank's supposed to in the auditors are supposed to be checking on, you know, different companies and all of a sudden you have your cousin or your brother-in-law or your sister-in-law running one of those companies.

And they say, yeah, it's fine. And it just kind of slides through and it becomes a difficult situation. So we've seen major, major fraud. In South Korea over the last 15, 20 years, just because, because they've set up these companies in a way where it's just so easy to commit fraud, you know? 

Wyatt: [00:19:16]So, so the countries that ranked at the top, like Japan and Scandinavian countries, like we love to put those countries on a pedestal and say like, Oh, they have it all figured out, but there are, we forget that those are very ethnically and culturally homogenous countries, you know, most of the people come from the same background.

What kind of role do you think that, that. Homogenization plays 

Chad Albrecht: [00:19:40] I think you're right. I think now people from the same culture, the same idea, the same Brack ground, of course, they're going to say, Oh, well, yeah, the way we do businesses, the perfect way to do business. Yeah. If you look at Scandinavia, they do a really, you know, they always replace and rank really highly.

In fact, I just barely pulled them up when we were talking and, and, you know, for those who are listening. So this is from 2019, the least corrupt country in the world, according to their rankings, where New Zealand, Denmark, Finland, Switzerland, Singapore, Sweden, Norway, Netherlands, Luxembourg, Germany, Iceland, Canada, UK, Australia, Austria, Hong Kong, Belgium, Ireland.

Estonia in Japan. So that was one through 20 and United States is 23, right before France, futon and chili. So, but going back to your question, I think it does impact it. I've lived six years of my life in Spanish speaking countries. And I taught classes most of that time. And I had, when I lived in vain, I have a lot of students in my university classes who were from Scandinavia.

And because I love research, I was researching, uh, fraud and corruption. I would always do a presentation and the students loved it, but afterwards, uh, I'd always have a number of Scandinavian students come up and they'd say, you know, you said that we're one of the least corrupt, uh, uh, countries in the world.

But let me tell you about this situation that happened in this situation and this company and this company, and they go off. So there's fraud everywhere, right? And they have lots of examples of fraud, both large scale cases, as well as smaller cases that had taken place. And, uh, and so it's kind of interesting to see that, that, that it is where, 

Wyatt: [00:21:16] or what's like one of your go-to examples of a fraud when you're teaching this kind of stuff.

Chad Albrecht: [00:21:21] 

So it all depends on what we're doing. I like to break down fraud into kind of three separate categories, and there's a number of different taxonomies that people use, but at least when I'm teaching, like the three most common taxonomies are the first one would be financial statement fraud. Which is where, um, individuals commit fraud on behalf of the company, which is kind of different because usually when someone's committing fraud, they're stealing money from the company, right.

Which we call occupational fraud. But these individuals are. Um, financial statement they're, they're making the company appear more profitable than it actually is. So actually committing fraud to make the company look better than it is now. What's the problem with that? The problem is they make it, but it looked like they're making money.

When a lot of times they're losing money or they made the company lose. Like they're not losing as much money as they are. And so the stock prices go way up. Um, and then, and then it's discovered, and then the stock price goes way down and all those people that had shares in those companies, they lose.

The vast majority of their money. And the classic example for that type of fraud is the Enron fraud. Before that it was WorldCom. Uh, there's always frauds going on with financial statement fraud because in the United States, we were extremely focused on short term results and CEOs and the executive teams of companies they're given significant stock options, meaning that if the price is currently at $5, And their stock options are given a $5.

If the stock goes to $4, they'd lose all their money or they don't get any money. They don't get a bonus, but if it goes to $6, then they make a dollar six minus five, they make a dollar on each of those share of those stock options. If they can get the stock price to go to 10, then they make $5. If they make it go to 15, they double that, you know, they make $10 on each share.

And so. Share with stock options that they haven't so that the, the incentive process that we have here in the United States really does favor short-term outcomes over long-term outcomes. Every system I've seen out there, every country I've visited every country, I've looked at their fraud, do United States does a really good job.

Do we have more to do? Absolutely. But I think they do a good job, but again, if you're one of the people that lost their entire retirement and Ron, you're probably saying the United States did a pretty poor job. So, uh, it's interesting. It's interesting how it all plays out. 

Wyatt: [00:23:33] You said that when people are defrauding companies, they kind of like got themselves into a situation and one thing led to another and they're feeding biases or habits, or what factors lead organizations to being.

Chad Albrecht: [00:23:48] Yeah. So going back to that, that taxonomy of, of three types of fraud, right? So they're talking about right now would be fraud against an organization. I've just seen lots of stories in our fraud book. We talk about a woman who, you know, it kind of breaks your heart to even hear the story, but she was like the ideal employee.

She was an accounts payable, a accountant for her firm. She had worked. You know, her whole life doing a really good job. And, uh, then she, she had a granddaughter. Her granddaughter was born and when her granddaughter became a year or two old, she started, uh, just buying gifts. You know, once the baby was born, lots of gifts.

Once the baby came to three, lots of gifts, this, this woman became addicted to the home shopping network and which is buy and buy and buy. Then she ran out of money, right? At work. She was put in a position of trust. And so she set up a dummy account and started paying this dummy account. She didn't need a second signature.

I forget the exact amount, but it was something like if it checks under $5,000. So she writes it out as like an advertising expense, no one ever really asks questions, writes it out and spent several hundred thousand dollars before it was discovered. Now usually when fraud takes place. It's a huge shock to the company.

Why would this employee do that? This employee has been the perfect employee everyone's heard emotionally. And usually what happens is the company quietly dismisses that person and that person goes on and lives their life and they get let go. Of course, but it's kind of the end of the story. The problem with that is.

When other people find out in the organization, then they think, well, I can still, and nothing bad is going to happen to me other than I could potentially lose my job. And so fraud researchers and fraud prevention efforts actually say the opposite. They say, you shouldn't let that person go. You should prosecute them to the full extent of the law.

And you said, make an example of the left or at least communicate that. You know, funds would have to be paid back and there will be punishment, et cetera. And this company, even though they were in the minority, that's the approach they took. So they prosecuted her. She ended up admitting to what she'd done and, you know, they had all the transactions and she went to jail.

Of course, while she was in jail. The IRS came back and said, well, you didn't pay on any of your earnings because whether you believe it or not, like we have to pay on money. We still, and so, uh, so then the IRS hit her with additional fines while she's in jail. It was a small community that the, her husband of something like 30, 40 years came and said, you know what?

You're not the woman. I thought I married has been an embarrassment. Then I'm getting a divorce, right? This woman comes out of jail. She has to pay back the money just to pay back the IRS, pay back the money, the company, pay back the IRS and, and, you know, should we working for the rest of her life? And this was a good woman.

Who, uh, you know, it was doing everything right. And then just had really high spending habits and got caught up in this situation. And a small fraud, like we talked about earlier, became a big fraud and it just became a disaster. And all along she wanted, she said, you know, I wanted. To pay it back. I was planning on paying it back.

I was just trying to figure it out. So it's, it's interesting. It's interesting how that plays. 

Wyatt: [00:26:48] Yeah. Utah is often an example of how, or use it as an example of how people take advantage of other people, because they're like go to the same church. And also there's a lot of MLM here. What's like the landscape of fraud in Utah.

Chad Albrecht: [00:27:05] Well, let me tell you, yeah, I go to a conference it's called the Institute for prod prevention. It's by invitation only. And it's. We're at a number of academics, go and participate. And, uh, and they meet with like, Some of the biggest banks in New York. So it's in New York, one year, Washington, DC, the other and government.

So, you know, all the big government agencies will be there. And they'll talk about issues that they're seeing. And I had an individual, I don't know if he was from the FBI or the tobacco alcohol environments division or, uh, which division, but he came up and said, Hey, Chad, it's great to meet you, blah, blah, blah.

I said, great, great to meet you too. And he said, where are you from? I said, I'm a professor at Utah state university. He said, Oh, Lana, the pyramids. And I said, what do you mean line of the pyramids? He said, Oh, we see so many pyramid schemes coming out of Utah. It's unbelievable. Right. So, and it was kind of a joke and we both kind of laughed it off, but Utah absolutely, uh, is a major, major issue, uh, because of what you just said now in the literature, we call it a affinity fraud.

Affinity fraud is where. You and I have something in common. So I naturally trust you more. Now we've seen this, like with the Bernie Madoff scandal, which was a $50 billion fraud with the Jewish community, right? Because Bernie Madoff was Jewish and he connected a lot with those people, the Jewish community, even some Jewish nonprofits were hit really hard in that.

Um, we've seen the same thing with like the Filipino American community where a group of Filipinos running the same problem, because they're all first or second generation Filipinos living in the United States and they trust one another and they invest with one another. And then it's a huge scandal in Utah connections and relationships.

And, uh, church relationships are so important that people naturally trust people when they shouldn't. And so this, this idea of affinity fraud, because there's a commonality comes out big time. And I don't want to say I from like, in all my research, this is not an issue with the people of Utah. It's not an issue with the, you know, the dominant religions inside of Utah has nothing to do with that.

It has the fact. That is a much greater issue, which is we trust people, which we probably shouldn't do. Right. But we research shows that we trust people who look and talk and believe what we believe and act and talk like we do and dress like we do et cetera. And because of that, people let their guards down.

And because of that, they, they naturally. Uh, invest. And without seeing the red that, you know, the red flags and the signs that something may be off. And especially when people start relying on, you know, Oh, I have this feeling or I have this, you know, I really believe this is the right thing to do. I mean, I, I've got a file upstairs in my office with, you know, letters that I've gotten from people saying, this is the right thing.

I feel that I've been divinely led to do this, and I I've, I've contacted them and said, You should not be doing this. This is the wrong thing. Please don't do this. You know, I, I, I I'm by no means an expert, but I've studied this for the last 15 years of my life. Don't go this direction and, and they think I'm being a jerk, which is fine.

And then I follow up with them five years and it was, it was a total scam and they lost a bunch of money, you know? So it happens all the time. 

Wyatt: [00:30:12] What kind of warning signs do you try to highlight for them in your responses? 

Chad Albrecht: [00:30:18] For me, and I'm still learning, right. But for me in my life, What's most important for me, I've realized as my relationship, my relationship with people, my relationship with my kids, right.

And in order to have an authentic relationship with people, we can't always have our guards up. We can't always be, you know, Oh, is this person going to commit fraud on me? You know, are they going to steal my money? We need to trust people. We need to care about people. We need to love people at the same time.

We need to have guards up that protect us. When something like this happens. So I think it's wise for every person to sit down and say, you know, I'm not going to get involved in an MLM, unless it's a product I believe in if the focus is on the recruitment, I'm just not going to do that. That's an area I'm not going to go to.

I think if they say, uh, or a award member or a member from my congregation or whatever it is, comes up and says, Hey, I've got this. I do not invest with friends, or I do not invest with family. Or do you not invest with church members? Right. Or if it is, I go through process ABC and D and E to make sure everything looks right.

Uh, the problem, I think the challenges for everyone is all sudden, we see there's this image in Utah that we need to keep up with everyone else. There's an image of, uh, 

Wyatt: [00:31:33] I forget that. And so when I go back home, like me, my sister, we'll talk about it. I'm like, Oh yeah. Things are a tiny bit different. 

Chad Albrecht: [00:31:37] Yeah.

It's so true. They are right. And so, so, so we see this idea and we think, Oh, you know, the world, the elements, whatever I believe in, they'd given me this opportunity, Trinity, and it's actually the opposite. And it's people we trust to end up taking advantage of this. I mean, I was a student in Utah. In the late nineties.

And I cannot tell you how many times I was invited to go participate in some it's some type of investment, some type of new business, some type of, uh, MLM. And I, I know I'm bringing up MLMs a lot. I don't want to be critical that MLMs cause they're actually a great marketing tool and company, if they're done right.

If they're done right. But there's also a lot of fraudulent ones. Right. And so we have to be careful any time that type of thing happens. Um, and going back to those three types of fraud, right. There's. Financial statement fraud. There's occupational fraud. Those are both company. Then there's consumer products.

And the research shows that one third of us, one third of us, we become a victim to consumer fraud in our lifetime. So, you know, one third of the people in a classroom of students are going to become a victim and it happens all the time. 

Wyatt: [00:32:44] Yeah, I've been a victim. I lost, like, I sold something on eBay and I like did it wrong.

It was like a $1,200 piece of equipment. I don't know. I mailed it to like the wrong address, like in the Philippines or something, you know? And it's just like, it really sucks, but I'm also like, okay, you learn, learn did $1,200 lesson. That sucks. That will not ruin your life. Don't be an idiot in the future.

Chad Albrecht: [00:33:05] 

Right? Well, and I think that shows that you're like, you know what it happened. I learned from it. I moved on. It shows your comps. I think what happens a lot of times in Utah is people lose their money and then they just. They, they shut down. They don't tell anyone they're shamed. Right. They're shamed by what happened.

And it allows the fraud to keep going, right? You're like, yeah, this is what happened. I learned from it. And now I know not to do that, especially when it's in like a neighborhood setting, it becomes really sticky. 

Wyatt: [00:33:31] It's easier for me that the bad guy is somebody in some country who, you know, and also you were like maybe the third person I've told about this and like four years. So definitely some shame around there.

Chad Albrecht: [00:33:40] 

Right. Yeah. Yeah. Yeah. 

Wyatt: [00:33:46] What's kind of your advice to people who are students, students, and people who are homeowners or business owners while we're kind of waiting to see what the future looks like. 

Chad Albrecht: [00:33:55] So great. Great. Uh, yeah. Great discussion. Great thought, great question. I think what's most important based on the research that I've done and, and, you know, the years that I've put into it, I think the most important is just to keep your guards up.

So again, going back to relationships, being important, trust people. Keep your guards up. You've got to have veal aware of the red flags that could come your way because we're going to see, you know, as the economy goes down, we're going to see a lot of pressure to engage in risky investments. And risky opportunities.

And a lot of it is just going to be a mess. Right? A lot of it is not going to lead to money. It's going to lead to losing money. It's going to lead to misery. It's going to lead to a lot of pain. So people just need to be hyper-focused on possible red flags, if something sound and what are those red flags, right.

If something sounds too good to be true. It is, it's not, it usually is, but it is right when, when you're dealing with money, it is, there's no quick way to make a lot of money. You've got to put your eggs in a, you know, don't put all your eggs in one basket, you've got to diversify your risks. You've got to make sure that, uh, that you stayed a year and that.

We might get into this a little bit later, but your spending, your spending and your saving habits stay the same or that they adjust according to, you know, your work and how much work is available. But yeah, if something comes along that you feel like, Oh my gosh, this is the opportunity of a lifetime.

This is, this is. This is going to fix everything. This is going to, you know, this is a direct answer to my purse. Those should all be red flags when you're dealing with finances, if it's relationship or boyfriend, girlfriend, right. That's probably a different issue. Although I also have red flags there, but with money, especially, that's not how the process works.

So take a step back, take a deep breath. Think through it. Talk to someone you trust say, Hey, did you know this is going on? Be aware even with families, I can't even tell you, like so many times fraud takes place in families. It takes place between brother and sister-in-law's, it takes place. You know, we have number of situations where people go and steal grandma's retirement, you know, just terrible stuff like this.

So you've got to have your guards up. Find someone you trust and talk to them. 

Wyatt: [00:36:14] I feel like people in the business world like have a different way of understanding money or a different like metaphor to explain how they understand money. Like maybe you see it as a river, whereas the other people see it as like a piggy bank.

Chad Albrecht: [00:36:27] Well, yeah. Finances are tough. They're tough for everyone. They're tougher marriages. They're tougher individuals, you know, it ties into fraud so closely because. Uh, yeah, we see a lot because of drugs. We see a lot because of gambling. We see a lot because of other biases that people have. But the single bigness reason we see fraud is because people they like to spend and they have these unrealistic spending habits and they need to make ends meet.

So they end up stealing money. Right. It's interesting because I'm sure there's people out there that commit fraud and save their money. The in my entire career, I haven't come across. One of them, every single person that steal that commits fraud is immediately spending those funds. Right. I think it's really important that we look at money as a tool.

It's not like an end game, be all. It's a tool that we can use to create. Freedom and create opportunities and to create security and safety for ourselves. And those we're close to. And I think, I think you need to look at it as a tool that you use to accomplish those things and learning to live within safety of not spending more, you know, it's just like a business.

You can't spend more than you bring in. You can't live on debt. You can't live credit card to credit card. You've got terrain in those spending habits. And if I were to say, you know, like the most basic rule is. You've got to understand where your money's going. So if someone's like, I have no idea where my money's going, uh, or I want to start saving.

What's the best way to do that. I'm like figure out where you're spending your money now, because very few of us have gone through and we write down where we spend our money and we know exactly where our money's going and just by the act of writing it down and understanding that process a whole new world opens up to us and.

You know, Dave Ramsey, most people have heard of Dave Ramsey. He's a financial guru. Uh, he, he actually went bankrupt when he was younger. Um, but then he learned a lot from it and, and he's come up and I total money. Make-overs his most popular book. He has a number, but. It really is good for someone that's starting out.

Like he's even a little bit too conservative for me. And I'm very conservative with my finances. Cause sometimes he's like, yeah, I never go to medical school because you may not graduate. And then how do you pay that back? And I'm like, no, there are reasons for me. I think it's okay to take out debt for a college education for your first car and for a house.

Right. But he's even a little bit more conservative than that, but. I cannot say enough good things about our neighborhoods. If someone wants to, to, to get their finances under control, follow his baby steps process, go through his financial peace university thing that he's got, and you'll learn so much more about.

How to do finances and how to live within, you know, in a good, financially healthy way. You know, in my capstone strategy course, we, we, we have a couple of modules where we talk about that pretty deeply, because I feel like that is such an important element to a happy and good life is being able to control our finances.

And I feel like it's just like the emotional, just like the physical. We've got to make sure that the finances, you don't have to make a ton, but we got to be in control of our finances. You know, that's the one thing I've realized is me just like everyone else. Sometimes I'm amazing with my finances. And sometimes I make really stupid purchases.

Sometimes I keep track of it really well. I remember the first time I sat down with my mother-in-law, my wife's the last of nine kids. Right? So she's in all siblings make great decisions, many times poor financial decisions. But I sat down with her, you know, like this was 10, 15 years ago. I said, here's my mortgage.

Here's how much. No. I had an Excel spreadsheet and I said, this is my mortgage. This is how much we pay a month. This is how much I pay extra. This is what I'll be paid off. And she was blown away. Right. She'd never seen anything like that. But for me, that gave me peace. 

Wyatt: [00:39:57] Like that makes me think of like auto-pay because most of my bills are on auto-pay.

So I don't even need to check in and see what my utility bill was. Like. I have an idea of how much it would be, but how do you feel about auto? 

Chad Albrecht: [00:40:10] Yeah, no, I, I, the convenience of auto pay is so nice. For years, I was like, I'm never doing auto pay. I like to write out the check. I like to know how much I paid for everything.

And a couple of years ago. And part of it was because we were leaving the country and I needed it. You know, I didn't want to have bills stacked up when I got home. So I pushed everything over to auto pay and it's so nice. Right. And I think, I think it's. For me, it's, it's kind of lazy, but I do think the principle behind it's kind of bad, even though we all, most of us do it is then we don't keep track of how much everything's cost.

You know, if we're turning out simple things like turning off the light, right? I mean, we should be doing that for the environment anyway. Um, let alone for the financial cost. But when we're not physically going through this process of evaluating, we become, at least me personally, I become more lazy. You know, that's the balance.

We're all trying to, what do 

Wyatt: [00:40:57] you think prevents people from wanting to take a look at their financial situation? 

Chad Albrecht: [00:41:01] You know, I think a lot of people have fear. I think a lot of people are scared. I think there's that thing that we talked about earlier, where we're trying to keep up with everyone else. I think people like the freedom to go out and buy what they want whenever they want it.

Exactly. So I think there are a lot of underlying issues that causes us to spend more than we should spend. 

Wyatt: [00:41:20] What financial lessons do you wish you had learned sooner? 

Chad Albrecht: [00:41:22] Just like everyone. I think we all make bad financial decisions and I think we all make good financial decisions. I can think of a number of times when I made bad financial decisions that if I could go back on switch, but just like you said, with the, you know, sending some equipment out of the country, we learned from it.

Hopefully we're young enough where it doesn't have a lasting impact on us. And we change our behavior. One of the worst financial decisions I've ever made is trying to time the market, which is where you pull your money out, because you think it's going to go lower and then you put it in. When you think it's going to go higher.

And for our retirement accounts, we just need to trust the markets which have since 1910, got up between nine to 11% per year. Um, and trust that it will go up and not time the market. So mine. And this is because I was being too cocky and overly confident with my own market abilities. As I tried to time the market and I had got hit huge a few years ago because I was trying to time the market.

So just leaving it in there. So, but we all have mistakes like that. Right. We all learn from those mistakes. 

Wyatt: [00:42:23] What is the main thing that you're going to take away from this COVID experience? 

Chad Albrecht: [00:42:27] You know, I'm hoping that what I take away is tough times will come. But we'll all get through it. We'll pull together just like you said earlier, humans are stronger as a society.

We're stronger. Um, and, and we'll get through it and we'll be innovative and we'll be creative and we'll figure out ways to overcome difficult times when they come in our lives. So for me, that's, that's a great lesson. Um, I think I'm also going to take away, you know, just realizing what's important. Uh, yes.

Work is important. Yes. Finances are important. Yes. The markets are important. That's all part of life, but what really important is important for me and I, you know, I said this earlier, but it's the relationships, relationships with people I love and care about and building those relationships. And so, you know, when, when, when I quote unquote, graduate, retire, die, whatever we want to say, you know, You know that I'm going to look back, but when, when I get to that stage, I'm going to look back and I think, you know, hopefully the relationships, this, this COVID, uh, uh, episode or.

Or time period that we've gone through will help me further solidify and put importance in the relationships of life, which I haven't always been great at doing. 

Wyatt: [00:43:36] Right. That was my conversation with Dr. Chad Albrecht. And what have we learned? We're living in interesting financial times, but we need to remember that while it's easy to compare it to other things like the great depression or the great recession.

There's definitely some things that are different. This isn't that keep an eye out for those red flags. Be wary of friends with investment ideas. And like your grandparents may have told you that's too good to be true. It is. If you're scared of looking at your finances, find what works for you, that, that you can feel the peace that comes with understanding your own finances.

Do you want to be happy? Don't think of money as a way to keep score instead. Think of it as a tool that supports your life and your relationships. And personally I learned to not put too much trust in Zoom's audio recording features. And if you're selling something on eBay, always send it to the verified address.

Do you have questions for USU researchers follow at. Instead podcast on Instagram, we'll let you know about upcoming interviews so that you can submit questions for me to ask this episode of instead was edited by Nick Vasquez and me Wyatt Tropper as part of our work in the office of research at Utah state. . .

 

A shock to the economy
Small fraud does not exist
She stole HOW much money!?
Utah: The Land of the Pyramids
No quick and easy way to make money
Realizing what is important