More fraudsters are seeking out children for identity theft, highlighting another danger of the digital economy.

The limited financial history of a minor gives fraudsters the ability to build a synthetic financial identity for them, opening new accounts to exploit. This practice is fueled by data breaches, but just as often the fraud involving a child is coming from a person known to the family, including spouses and relatives. Sometimes 'smart toys' such as a WiFi-connected Barbie doll provide the vulnerabilities that let hackers in.

Chart: Who steals a child's identity?

"In most cases, a lot of parents are not finding this out until later, when the child is older," said Melba Amissi, senior vice president and chief risk officer at Identity Guard, which sponsored the study from Javelin Strategy & Research.

More than 1 million children were victims of identity fraud last year, resulting in losses of $2.6 billion and more than $540 million in out-of-pocket costs to families, according to the Javelin survey, which was conducted between August and September of 2017 of 5,000 individuals who have a dependent minor in their household now or lived with one in the past six years.

Of the $2.6 billion in overall losses from child identity theft, $242 million came from existing card fraud, while $989 million came from existing non-card accounts, such as checking, PayPal and e-commerce accounts.

Account takeover resulted in $1 billion in losses, while new-account fraud accounted for $1.3 billion, whether from checking or savings accounts, credit cards, or personal, mortgage or auto loans.

Most commonly, at 33%, a family friend initiated the fraud against a child, while the caregiver's partner or spouse was the perpetrator 18% of the time.

"A trend that is unique among children is they are much more likely to have the fraud committed by someone they know," said Al Pascual, senior vice president of research at Javelin. The study revealed that 60% of the families of child fraud victims knew the perpetrator.

In some cases, a parent or guardian may think it is OK to use a child's identity to create an account that would allow the family to pay some bills, Pascual said.

"And then there are cases where someone knows the child and the motivations are a bit less selfless," he added. "It could be the uncle with a criminal background who doesn't mind ripping off everyone, and he goes and opens new credit card accounts under the child's name and goes on a shopping spree in Las Vegas."

A high percentage of the children (66%) targeted for identity fraud were between 0 to 7 years old, the report said. Those ages 8 to 12 were victims 20% of the time, while those 13 to 17 only 14% of the time.

The presence of online or physical bullying also comes into play, as the research indicated that minors bullied online are more than nine times more likely to be victims of fraud than those who are not bullied. Though in-person bullying is associated with only a small increase in the prevalence of fraud, it results in a more damaging crime.

The average fraud amount for victims who were bullied in person reaches $4,075, or about four times more than for those who were not bullied.

"We came to the conclusion that kids who have been bullied are softer targets," Pascual said. "They may be prone to making fast friends without discerning between friendly behavior or abusive behavior."

Children who have been bullied tend to share information when they shouldn't, a result of how they interact with others because of the bullying they have endured, Pascual added.

The transition into a digital account world has created more opportunity for synthetic identities to emerge and the stealing of a child's personal credentials is an opportunity to take advantage of the digital age.

"Child fraud has been around for some time, and it was around 2004 when we started offering parents the opportunity to more closely monitor their children's accounts," Identity Guard's Amissi said. "But child identity fraud is getting broader and this research has helped us find out more about the various areas in which the information is being used."

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