Pyramid schemes can be tricky to spot, but they all work in the same way. People are asked to pay money to join, with the promise of earning more by bringing in new members. At first it may look like an easy way to make money, but in reality only a few people at the very top ever benefit.
You may wonder if they are the same as multi-level marketing schemes. They’re not. In legitimate multi-level marketing, people make money by selling real products or services, not just by recruiting others.
Pyramid schemes may try to look legitimate by offering products or services, but these are often overpriced, poor quality, or hard to sell. The real focus is always on recruitment. The promoters at the top take the money from those who join under them, while the majority of participants never see the rewards they were promised.
You may hear about a pyramid scheme from friends, family or neighbours and in seminars, home meetings and on social media. Sometimes it’s an acquaintance you haven’t heard from in a while reaching out with a so-called “business opportunity.” Those in a pyramid scheme are often encouraged to contact everyone in their contacts and social media friendship lists to tap into potential new recruits. Sometimes they may not even realise they are involved in one of these dodgy schemes.
For a pyramid scheme to keep running, there must be a constant supply of new people willing to join. But eventually the pool of recruits dries up, the scheme collapses, and those lower down are left out of pocket.
Along the way, friendships, families and marriages can suffer when money is lost and trust is broken.
It’s important to remember that pyramid schemes are not just risky, they are against the law. Taking part, or encouraging others to join, could result in prosecution. They are often sold as “get-rich-quick” opportunities, but instead they leave most people worse off.
If you’re ever invited to join a group or business venture that asks for money up front, claims guaranteed income and focuses heavily on recruiting others, think twice. Pyramid schemes are never a safe way to make money, no matter how convincing the sales pitch might sound.
Consider whether the rewards you have been promised are dependent on product sales. If so, are the products of real value, sold at a reasonable price and something there is actually consumer demand for?
Don’t let yourself be pressured into making quick decisions about money and always get independent financial advice before investing. If something sounds too good to be true, it usually is.
Anyone with information about a pyramid scheme is urged to contact Consumer Protection by email to consumer@lgirs.wa.gov.au or call 1300 30 40 54. More information on pyramid schemes is available on our website at www.consumerprotection.wa.gov.au