How to Recognize Pyramid Schemes and Avoid Them - Dave's Wallet

How to Recognize Pyramid Schemes and Avoid Them


If you’re a regular person, you’re definitely always caught between saving money and giving yourself occasional treats. After all, you only live once. Whether you find yourself in this situation or not, the chances are high that you will always get a lot of suggestions to diversify your income channels.

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Many people leverage the popularity of this advice to push out different money-making and investment platforms. While few are genuine, many of these platforms are fake and will only rob you of your hard-earned money. The best way to stay financially safe is to understand how these schemes work and how you can avoid them.

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Pyramid schemes or Ponzi schemes essentially mean the same thing. These schemes are built on an unmaintainable business model while promising you a double of your investments.

When an investment scheme promises you returns that are too good to be true, it’s most likely a scam. So, here are signs to spot a pyramid scheme.

  1. The scheme will require you to recruit other people. The fees of these new members will serve as the profit for your investment.
  2. The scheme requires a large joining fee or first investment.
  3. These schemes require members to sell low-value goods through members rather than directly to consumers.
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The model on which these businesses are built makes those at the bottom of the pyramid end up losing their money completely. If you come across a pyramid scheme, avoid it, and ensure to report to relevant financial authorities.