Thousands of South Africans are joining the referrals for comission business models but there are loads of disadvantages to these businesses.

It started among a few friends and then it has become a miracle call for many hoping to make extra income. My friend told me about a “financial opportunity.” I was invited to invest R3,500, and in a few days I’d stand to get back R 750. I only had to get two other people to invest too. This would be easy, because they could make so much money.

A few years ago, I remember many people playing The Invest and reward scheme, and they were all waiting to get bonus payout. What happened? Why did that scheme stop? Did everyone eventually become a millionaire and cash out their millions?

The “Investing schemes,” “financial networking” “golden circle” “Friends Network,” “pyramid games”: they’re all the same. They’re also called “ponzi schemes,” named after Charles Ponzi, a man who perfected the game in 1919. No matter what they”re called, pyramids are a lie, a scam, and they really do not work.

You see these ponzi artists, show off cars and houses and you get motivated to conquer the world. The problem is that no one really tells you the truth, that you will have to get the fat boss more points before you can really harvest. It get’s really frustrating and sometimes demeaning and the saddest part is that these schemes prowls on the low income house holds.

The fact about these referral schemes is that , the meal has already been served and shared before these hopefuls even started and they would keep filling in points for the fat cats.

The lie

All ponzi schemes work the same way, regardless of the particular details of any one game: they pay off old investors with the money from new investors. Paying off old investors with the money from new investors is a dishonest way to make money, because no money actually gets “made.”

There are two ways to make money. To sell money, or sell stuff.

Selling money:

Banks and other usurers who sell money pay depositors a fee, called interest, which is much, much, less than the fee they charge other people who buy money (take out loans). For example, saving accounts currently pay 2% while personal unsecured loans cost 10%. This difference between 2 and 10 percent is the profit the bank makes after it pays off your investment. You are at the top of this “pyramid,”but the amount you take out of the bank is four times less than the amount that stays in and makes the bank directors rich. “New money” comes into this “pyramid”from people who eventually pay much more back on their loans than they take out.

Gambling casinos make money the same way, paying out much less to winners than they keep from losers.

Selling stuff:

The other way to make money is to invest with a company that sells something: a service, information, or objects. If your investment is successful, then the company has found consumers for its things, and received more money than it must pay back to you. New money comes from consumers who are willing to pay a marked-up price. As an investor you take a risk that the company will be able to pay you interest with its profits from the added value consumers create.3

With a ponzi scheme, there is no earned interest or added value. The only profit comes from having an ever-increasing number of players. New money to pay off old investors comes from new investors. No degree of wishful thinking will make money out of no money. If anyone tells you different, they are lying. New investors must be found, or the game collapses.

The Scam

Oh, but there will always be new people, I’m told. In fact, I’m told many things:

This game is different. people are responsible to those below them, they’re re-investing their money; they buy the slots of the people below them; they’re helping their friends take advantage of this great opportunity.

This doesn’t change the fact that new money comes from new investors. This practice will prolong the game, because there are more “slots” on the pyramids than people playing, but reality still holds. Unless the “winners” are reinvesting every dollar of what they “win,” (which they don’t) someone is going to eventually lose.

Because money is always being taken out of the game by winners, the winners can’t help everybody. So who gets helped? The people who are liked, the people who have friends. Who gets left out? The very people who get screwed in most social groups: the misfits, the difficult people, the people with few friends. And this is supposed to help our diverse community?

If people work hard at getting more investors, they will get their money; if people don’t work hard, then they deserve to lose what they invested.

This sounds familiar, like those other scams that put people into a situation where they might fail, and certainly many people will fail, and when people do fail, they are told it is their fault. This is a common political tool to make people feel worthless. The tool is only more insidious when it’s wielded by women we trust.

These are people we know. They have gotten their money. They’re helping other people get theirs.

The trust part, I hate that. Pyramids are a con game and that means confidence. Ponzi schemes thrive in homogeneous communities of people who trust and care about each other. In fact, the tighter the community, the better it works, and therefore the more damage it does when it collapses. I’ve seen specialized ponzis first-hand as a partner. I’ve read articles about how they run through the African communities, and I’m sure every group has its own con artists. Ponzi schemes wouldn’t work if people didn’t trust each other. Would you give R 2500 to some stranger on the corner who said she would pay you back R 20 000 in three days?

If people don’t play the game early, then it’s their fault, they just didn’t luck out like we did.

The odds of winning get worse and worse the longer the game is played. Some people think this recent pyramid is just a form of gambling, but no. It’s a game for suckers and crooks. Encouraging your friends to gamble in a game where their odds of winning their money is worse than yours were, because you got in the game first, should make you feel uncomfortable. Oh, but that must be why winners “help” those on the pyramid below them.

Well, I signed something when I put in my money, saying it was a gift, and I didn’t expect anything back in return.

This is a new twist, to protect the people already in the game from criminal prosecution and civil lawsuits. Early ponzis had one person at the top who raked in the cash. These “new age”pyramids turn our friends into criminals who must be protected by lies on paper. If this game is so good for communication in our community, why must we lie to our friends immediately upon entering the game?

This is a great opportunity to talk about our money stuff.

If you want to deal with “money stuff,”try buying a house with your friends. Or loan someone a large sum of money. Or borrow a large sum. Co-sign a loan. Start a business with a friend. There are companies that are selling shares and securities to companies, as well as investment brokers. These are real opportunities to learn what  taught you about money, and discover how you can do it differently. Scamming your friends is diminishing, not revolutionary.

It won’t work.