During my second and third decades of life, I saw a number of financial schemes move through the area. A common thread was the enticement to get rich — to make it big. Some of these things were legal; others were not. The amount of enthusiasm these schemes generated among people in the area was truly amazing.
Perhaps the most common scheme was multi-level marketing. Most of these plans were completely legal. But I found that almost universally, the claims being made were misleading at best. Many were outright lies. It’s not that you can’t turn a profit at MLM, but you have to do it through the drudgery of actual product sales, rather than simply recruiting a “down line” that continually feeds you royalties for nothing more than personal consumption.
The world’s premier MLM company is Amway. I knew many people (including relatives) that were involved in Amway. At one point I allowed myself to be recruited as a distributor by a relative. I attended a number of meetings, but I found that being a successful distributor required something I lacked: sales ability. I also found that some of the meetings were very cult-like and were filled with propaganda.
Most MLM is quite benign compared to the more insidious schemes I have seen. Relatives of mine were very dedicated to their Amway distributorship for four years. After that time, they did a financial analysis of their income, costs, etc. They discovered that after four years they had almost broken even. That means they had earned less than zero for their thousands of hours of work. That was the end of their distributorship. They had lost time, but at least they didn’t lose their shirts.
In the late 70s and early 80s, a dynamic fellow by the name of Grant Affleck ranged through northern Utah and southern Idaho with his scheme. He used his religion as a strategy to get fellow believers to take out second mortgages on their homes and invest in his plan that would produce huge returns. Even before it all fell apart, my Dad told me that if anyone used religion as a basis for a business proposition, I was to run the other way as fast as I could. Thousands of people that invested in AFCO ended up with second mortgages they couldn’t afford. Affleck ended up in prison.
Another scheme that was popular briefly was one that got people to buy diamonds and then re-sell them. It looked really good to people that went to sales meetings. Neighbors would be featured that had sold their diamonds at a huge profit after only a few weeks. But the scheme turned out to be a pyramid. Earlier participants were being paid off with funds from later participants. Saturation point was reached rapidly. The schemers suddenly turned up missing, and so did most of the money.
There have been many other get-rich-quick schemes. They all have two features in common. 1) They play on greed, promising to produce substantially greater returns than ordinary work and investing. 2) They play on people’s good natured willingness to trust others. People that strive to be trustworthy themselves naturally trust others. Sometimes this leads to gullibility. When combined with the natural human tendency toward greed, this produces a willing gullibility. We refuse to see the facts that might detract from the rosy view we want so badly to be true.
Many government programs work on these same two factors. They play on human greed and on the innate desire to trust in something that sounds good. The desire to produce a happy outcome — to solve some social need — overcomes critical consideration of the facts. We enter into many programs with a willing gullibility, throwing caution to the wind. Our willingness to see these programs for what they actually are is optional. But reality is not optional. The undesirable side effects these programs produce always pop up eventually. And once a program has a foothold, it becomes a maw that perpatually gobbles down increasing amounts of taxpayer money. As the proverb says, we may dance all night, but we must pay the fiddler in the morning.
Next segment in this series: Financial Rules for Life
Past posts in this series:
YM and OPM
Our First House
The Tax Auditor