What is identity theft in relation to personal finance?

Identity theft is a serious issue in personal finance that occurs when someone's personal information—such as their name, Social Security number, credit card details, or bank account information—is illegally obtained and utilized to commit fraud. This can manifest in various ways, such as opening new accounts in the victim's name, making purchases, or taking out loans without their consent. The financial implications for victims can be devastating, leading to significant debts, damage to credit scores, and the challenging process of recovering their identity and finances.

In this context, the scenario described in the other options does not fully capture the essence of identity theft. While impersonation for tax benefits could be a form of fraud, it does not encompass the broader range of personal information theft. Failing to pay debts relates to individual financial responsibility and is not tied to the unauthorized use of someone else’s identity. Lastly, mistakenly using another’s financial information implies a lack of malicious intent, which contrasts with the deliberate actions typical of identity theft. Thus, the correct understanding is that identity theft involves the illegal acquisition of personal information with the intent to commit fraud.