Why do we buy into the pyramid scheme idea? - DebtSafe

PRETORIA, South Africa - June 21, 2016 - PRLog -- In today's tough economic circumstances, the idea of receiving money for minimum labour sounds extremely good. DebtSafe, one of South Africa's most trusted debt review companies, warns individuals that… "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 adverts shouting, "YES it's possible to earn R30 000 or more" for doing the bare minimum work. Other schemes' recruitment slogans advertise "We have the greatest opportunity in the World!" or "Create a better life for yourself and your family".

"Unfortunately," says Wikus Olivier, Debt Management Expert at DebtSafe, "people are attracted to a scheme's setup 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, because the selling often happens one-on-one and the seller personally testifies to the success of the scheme.

Why pyramid schemes can't last

Pyramid schemes are 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, Olivier points out that the rest of the investors are defrauded from their nest egg or retirement and emergency funds.

Why do people fall for a Pyramid Scheme?

"We are experiencing difficult economic times and the idea of getting a relatively high return on investment while not putting in too much effort, sounds attractive," he explains.

To understand the system better, we can use Mr Smith as an example. He invested R70 000 in a "money market". The person who introduced him to the scheme told him he could withdraw money at any time after the first 12 months. The return promised on the investment was fantastic: the first commission payment was 40% of his original investment amount.

Little did he know that the first dividends were paid from the original payments that everybody made when they registered to become members of the scheme. After a year there was no money left, and the scheme's "owners" disappeared with his and other investors' money.

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

Olivier says that there really is no quick way to get rich. "Wealth is generated by hard work and good investment over a long period of time," he adds. "People are overwhelmed when you advise them to invest their money, but start small with whatever amount you feel comfortable with. You might not realise it, but investing a relatively small amount such as R100 a month can make a difference," he says.

One important thing to remember when you enter the investment market is that it's a time game - the longer you invest your money, the better. Therefore, make absolutely sure that the amount that you invest is not needed to help you get through the month. "If you want to invest money but don't have time to keep track of the investment, contact an advisor at your bank; this person will explain the pros and cons and help you to make the right decisions," Olivier advises.

For more information, please visit www.debtsafe.co.za