In today’s tough economic conditions, the idea of receiving money for minimum labour and investment sounds extremely enticing.

When something sounds too good to be true, it usually is.

What is a pyramid scheme?

Basically, it is a very attractive money game.

Cash-strapped individuals easily fall for advert slogans such as, “YES it’s possible to triple your money with little or no investment”, “We have the greatest opportunity in the World!” or “Easily create a better life for yourself and your family”.

Unfortunately, people are attracted to this type of scheme because they only have to ‘invest’ a relatively affordable amount of money into a scheme that promises a very attractive return. The lure of it is understandable, and the selling often happens one-on-one with the seller personally testifying to the success of the scheme, making it even more believable.

Why pyramid schemes can’t last

Besides being often illegal, Pyramid schemes are unsustainable and doomed to fail because their success depends on the ability to recruit more and more investors.

Since there are only a limited number of people in a given community, all pyramid schemes will ultimately collapse. Yes, there are people who get extremely rich, but they are the few individuals at the ‘very top’ of the scheme. Using the recent MMM Pyramid scheme case as an example, the rest of the investors were defrauded from their nest egg or retirement and emergency funds.

How people fall for pyramid schemes

If an individual, for example, invests R70,000 in a ‘money market’. He is told he can withdraw his money at any time after the first 12 months.

The return promised on the investment is high: the first commission payment may be 40% of his original investment amount. Little does he know that the first dividends are paid from the original payments that everybody made when they ‘registered’ to become members of the scheme.

After a year, what often happens, is that there is no money left, and the scheme’s ‘owners’ disappear with his and other investors’ money.

There is another way to make your money grow… just a bit slower

Wealth can be generated by good investment over a long period – it’s a time game – the longer you invest your money, the wealthier you get.

Not as ‘exciting’ as a get rich quick scheme, but a whole lot more promising and realistic.

Wikus Olivier | Debt Management Expert | DebtSafe | | |



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