Financial pyramid: how to understand the scheme?

The name “financial pyramid” is well chosen. Humanity in general loves pyramids very much. And our history is the main witness to that. Otherwise, why did the people of the ancient world spend time, energy, and even their lives on them? Pyramids are in Egypt, Latin America, China and Italy. They stand because the figure itself is very stable. It is not for nothing that it is used not only in architecture. The pyramid served as a symbol for the accumulation of spiritual energy. What about Maslow's pyramid of needs? Its shape perfectly showed the scale from physical need to the need to fulfill. And even a dollar bill is decorated with a pyramid! Coincidence? We don't think.

New time could not refuse the favorite symbol of its ancestors. Now we are building financial pyramids. Most often – on the Internet.

Financial pyramid: what is it?

As we have already said, the pyramid is a very stable figure. And in the business world, it's not always negative. Only a few of its types pose a threat. So the term “financial pyramid” from the beginning was not negative. Many successful organizations with clear hierarchies have been compared to a pyramid scheme. After all, top-down income distribution is a stable model of development. Everyone works together to create a product and then shares the profits. But if the income is contributions from each person, then the top simply “feeds” the lowest participants. And this is an alarming symptom for the depositor.

A financial pyramid is a profit-making scheme, in which the income of the participants is possible due to the attraction of money from new investors. In other words, the people who first entered the pyramid receive the money from the newcomers. And so on until the structure is closed.

And these structures are closed very often. After all, the state oh how it doesn't like financial pyramids. And carefully remove them. Thus, according to statistics, in 2018 the Central Bank discovered 168 financial pyramids. Interestingly, a special program was developed to look for them. The robot reports a potential threat and people review its legality. The new law allows the Central Bank to block a threat website within a few days. What happens to depositors' money? As you can imagine, nothing good.

However, do not think that the problem is only in the state. The financial pyramid scheme is dangerous in itself. Practice shows that all pyramids close quickly. And leave half of the depositors at a loss. Let's look at the most famous financial pyramid of the CIS countries – “MMM” by Sergei Mavrodi. Some blame the state for its downfall. Others say Mavrodi's scheme was immediately doomed to failure. Its founder used the conflict with the government to shift blame to the authorities. The truth is that finding the truth is almost impossible. People just believe in one thing or another. And a better percentage of confidence in this story is on the state's side.

Signs of a financial pyramid

Fortunately, calculating a financial pyramid is quite simple. The history of this type of profit is so rich that economists have long identified the main features of the pyramid. Forewarned is prearmed.

no products

A real product is a key feature of any company. If it's not there, no one will directly tell you about it. After all, investing in a business is a fully functional and profitable scheme. So the organizers are always hiding behind something. You need to worry even when the product looks weird. For example, it is sold at a very high price or has no value.

The story of Wang Feng's ant farm is well known. At the heart of their business were ants with supposedly healing qualities. He offered investors these insects at 32% of the amount paid per year. But the ants weren't healing. There was no real use for them. The coup was exposed and Wang Feng was sentenced to death.

network structure

So we're talking about making money by attracting other people. Those who entered the pyramid earlier receive their income from the contribution of those who entered after them. Therefore, the scheme works only as long as there are more participants than participants. Many confuse this phenomenon with network marketing or a pyramid scheme. Next, we will explain to you what the difference is.

Financial information is carefully hidden

Yes, they can promise and explain a lot to you. But no one will show the documents that will confirm the words. Of course, for good reasons. Like a financial secret. However, a person with a lawyer's knowledge will immediately understand that there are no legal grounds. Also, pay attention to the company registration. Foreign design is not an indicator of prestige. And an indicator of problems with local law.

They promise a very high percentage

Just the case when more doesn't mean better. The money has to come from somewhere. And they need time to do it! Was great interest promised almost immediately? An experienced person will be seriously cautious.

active PR

The financial pyramid always creates a buzz around itself. After all, it only works when its members continually grow in its ranks. Show business stars are also often attracted to publicity. At the same time, the organizers are stubbornly silent about any risks. And give infinite guarantees of success. And they invite people to get involved. If you hear stories about “Only here” and “Only now”, slow down and think 10 times.

passive income

The indispensable condition of the pyramid is its inaction. Please note that bringing 10 people with you is not a job. People are promised money without any work. And they welcome thousands of new participants to the coup.

pyramid scheme

A pyramid scheme is a model for making a profit by attracting new participants. But after all, does the financial pyramid bring income in the same way? This is why these two concepts are often confused. Let's explain the difference. The organizers of the financial pyramid say that you will gain from your investments. In fact, the money will come from those who joined after you. The pyramid scheme immediately declares that your income is solely dependent on other participants. And it actively encourages everyone to invite new customers, giving little money only to beginners.

Feel where is the problem? To provide money to all depositors, the number of people must be infinite! Sooner or later, the flow of new members ends. When the whole scheme collapses, the really big money is only left at the “top”.

Financial Pyramid VS Network Marketing: Learning to See the Difference

Firstly, network marketing is distinguished by the presence of an actual product. A distributor network is just one way to sell it. Whoever is in the business receives income from the sale of goods, not from the investments of other participants. So everyone really wins. And even with these differences, the network business is often suspected of fraud. Thus, Amway has had to prove in court for several years that its organization is not a financial pyramid.

Thus, network marketing is a legal and not a dangerous scheme. And these companies pay taxes and can show financial reports. Therefore, the state has no claims against them.

Internet financial pyramid

With the improvement of information technology, financial pyramids moved to the Internet. And they operate there along with real ways to make money. As we've already said, the real ones are the ones you still need to work on. At least minimally.

China and the UAE are not limited to fines and prison sentences. In these countries, the organization of a financial pyramid can be sentenced to death.

Why the Internet? First, it is very difficult to find and blame the organizer of the Internet pyramid. Second, the publicity needed to attract participants is relatively inexpensive. Third, the reach of users is expanding: country borders are losing their meaning. At the same time, the type of financial pyramid can be radically different from the usual. It attracts even the most sophisticated person to the net. Take, for example, online games to make money. In fact, these are the same financial pyramids. And the problem is that you can't guess in advance how long the game will last. Those who enter early can really win. Anyone who deposits money later runs the risk of being scammed.

HYIP earnings

HYIP is a program to invest money. HYIP projects promise investors huge income and are built on the principles of a financial pyramid. Unlike venture investments, which are also very risky, HYIP does not invest in real projects. Its essence is the collection of money, the best part of which will stay with the organizer. If you get a money back guarantee, don't be fooled by big words. Yes, some will make money. But the losers in this lottery will be left with nothing.

The most interesting thing is that almost all investors understand that the project is fake. So why do they keep investing? On the Internet, articles are flashing about how to make money with HYIPs. Its authors “reveal” all the pitfalls and teach you how to invest money correctly. To do this, it is recommended to choose the “right” HYIP projects. They are looking for the “fix” of HYIPs in both the script and online support and even the website design. Everyone strives to circumvent the system, but only a few succeed.

Who is the financial pyramid for?

Here they earn at the expense of those who want quick money. “Who doesn't want them?” - you ask. In fact, everyone needs a good income. But it takes a lot of work for that. Anyone who believes in a million a year runs the risk of becoming a victim of scammers. Especially if you think you can't get off the couch to make money. At the same time, Sergei Mavrodi very accurately painted the image of an MMM contributor. We invite you to watch his announcement to better understand what we are talking about.

This is due to laziness and lack of financial education. By the way, this can be improved by reading our materials.

How to get out of the water dry?

Say what you will, but you can make a lot of money in a financial pyramid. First of all – your organizer. Therefore, the request “How to create your own financial pyramid” gives a real briefing. Editorial opinion: the game is not worth it. After all, we only offer our readers proven and safe ways to make money. We remember that after the story with Sergei Mavrodi and his “MMM”, the authorities even blow on the water. For example, they close companies that look like a pyramid scheme. Although in reality they are not. Therefore, the security that the authors of such articles promise is very doubtful.

If you still expect a high return on your investments, remember a few rules. First of all, only cool-headed people can participate in the scheme. If you're captivated by publicity, like Sergei Mavrodi, it's better not to risk it. There is every chance of burning.

Second, the pyramid is not a lottery. You can't just walk in and hope you get lucky. Do it smart. So we write that those who got into the business early on are paid large sums. So keep an eye on the age of the organization. This is exactly the case when a long life does not speak of success. The longer it works, the less likely it is to make a worthwhile income. And more – to give money to more efficient participants.

Third, remember that the contribution amount can never be returned to you. Treat an investment like a stake in a game of chance. Don't give more than you're willing to lose. Expecting a large sum to accumulate is also stupid. Enjoy the profit as soon as it appears. Otherwise, the scheme may fall apart before you see the promised millions.

The bottom line is this: you can make money in a financial pyramid. But do you need it?

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Have you come across financial pyramids and Internet scammers? Share your stories in the comments: maybe this will help others avoid serious mistakes. And if you want to improve your financial literacy, subscribe to our newsletter.