Why pyramid schemes stick like a demon

A reader from Tanzania sent email to me last week. Part of the mail read as follows: “Recently, a friend introduced me to Fin**** (I am sure it is in Uganda already). I have reluctantly invested USD100 and realised that they want me to bring two other investors in order to complete the binary/pyramid. And that alarmed me immediately.”

The people who come up with pyramid schemes are very knowledgeable in financial psychology. They make the scheme appear legitimate by associating it with something that is the rave like cryptocurrency or something that is much sought after such as the cure for life style health conditions. They also make the fee for joining the scheme appear reasonable and yet be big enough to enrich them.

Problem
Pyramid schemes destroy good judgement and friendships, also known as social capital. Some people who were previously upright become lifetime conmen or conwomen after joining a pyramid scheme.

Several years ago, I met a junior professor from Makerere University Kampala who had joined a scheme selling something called the bio disc. The professor was so convinced by the road to great wealth provided by the bio disc that he stopped focusing on his career.

Several months later, I met the man at a bus stage. Due to his messy appearance, I did not immediately recognise him until he told me who he was.

When I asked how the “business” was performing, the professor told me that joining the scheme was a big mistake on his part. The man who recruited him had left to front another scheme that made money from copying and pasting things on the internet.

The professor was left on his own to deal with the people he had recruited to join the scheme who were also dealing with losses.

When a scheme makes money through recruiting other people and sells a product that you do not understand why would you join it?

James Abola is a business and finance consultant. Email: [email protected]