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Why You Fall Prey To Ponzi Schemes?

By - Research Team    |    Updated On 12 April 2016 |    Financial Planning

Why You Fall Prey To Ponzi Schemes?

Quick money….Doubling returns….Money growing on trees…What can be better? This is the heart of a Ponzi scheme. A Ponzi scheme uses your own weakness against you. Greed… This is your need to grow rich and grow rich fast. Scamsters exploit your greed. They promise you ridiculously high returns and steal your money. Emu …Teak…Goat…Whatever…The heart of the scam is the same.

Does money grow on trees?

You must have heard of the teak plantation scam. What is the teak plantation scam? This is a famous scam in the mid 1990s. Advertisements were placed through pamphlets, asking investors to invest in teak plantations. Many middle class salaried citizens and housewives invested their life savings in the teak plantations, to make a quick buck. The teak saplings were planted and the investors waited for the teak saplings to grow into tall teak trees. The teak saplings never grew and scamsters ran away with investor’s hard earned money. Just tall claims….

The infamous Emu scheme

Another famous Ponzi scheme was the Emu scheme of the 2012’s in Erode, Tamil Nadu. Emu is a flightless bird belonging to the ostrich family. Investors were asked to make a single investment (one time investment) say a couple of lakhs. Investors were promised multifold returns on their investment (lakhs of rupees in returns), as the Emu lays eggs for several years. These eggs are sold for over a thousand rupees. The Emu can also be sold for meat. The schemers ran away with crores of rupees leaving the emu’s behind. Unfortunately Emu’s eat a lot. Now who was going to feed them? Well not the investors at least.

Now comes the big question. Why Do You Fall Prey To Ponzi Schemes? One of the main reasons is greed. You want to make quick money in no time and throw caution to the winds. You also do not care to find out where you invest. A simple question you need to ask yourself. Who eats emu meat and emu eggs. Well if no one does, then where do they get the money and how would they repay you?

Lack of  Financial Literacy

Crores of people in our country do not know what a bank account is. Many who do, have no access to one. Financial literacy is the need of the hour. Citizens of our country who reside in rural areas need to learn the following. What is a bank? What is a bank deposit? What is life insurance? What is saving? What is investing?

The next question is the big one. What are the realistic returns you can expect from your savings and investments? Savings bank accounts give returns of 4% a year. Fixed deposits give returns of 7% a year. But Ponzi schemes promise unlimited returns. A Ponzi scheme promises 100% to 300% a year or even more. How can a Ponzi scheme give such high returns? Alarm bells should ring in your head when you are promised such high returns.



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