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Beware of Better Mouse-traps

How do you recognize a Ponzi Scheme?

Someone tells you to invest $700 dollars and your money will be doubled in 2 months!

Who can resist that?

  1. Be careful! You don’t have to be a genius to realize that this is too good to be true. This might be a Ponzi Scheme.
  2. To avoid being a victim of a ponzi scheme, understand what you are investing in, determine if the entity is licensed, and don’t forget about risks.  Higher returns entail higher risks but only if the business is legitimate.  In an illegitimate scheme, you will lose your money at some point.
  3. The Caribbean is host to a number of ponzi schemes, so be AWARE!

Ponzi schemes are a type of illegal pyramid scheme named for Charles Ponzi, who ran a huge Ponzi scheme with thousands of New England residents into investing in a postage stamp speculation scheme in the 1920s. Read more about the story of Charles Ponzi.

A typical Ponzi scheme promises investors a very high rate of return to their money in a short time. Part of the money deposited by early investors is then used to pay their first dividend checks or interest. Early participants can profit and are happy to get high dividends; it makes the investment look legitimate. These schemes only require a few people in their early stages to be successful.

The person operating the Ponzi scheme continues paying them dividends for a couple of months until they are more comfortable with their investments, and decide to invest more. They then begin to urge their friends and relatives to invest as well. Soon, there is a steady flow of funds into the scheme, and the number of investors grows. If the swindler is disciplined about how much money is left in the account to pay "dividends", the scam can go on for many years.

Theoretically, if the scheme continues to draw in new investors, it could go on indefinitely. In practice such schemes usually fall over because the promoter starts to spend the money too quickly, or the pool of investors starts to dry up.

See how Ponzi Schemes operate.

Read about the Ponzi Scheme and learn with a simple examples.

Personal Financial Tips

  1. Pay your bills on time.
  2. Eat more at home and less out.
  3. Take your food to work.
  4. Forgo the ice cream store and pop popcorn at home.

More Financial Tips