“Too Good to be True” (and How to Spot Scams)

Tagalog Version (Click Here)

Some time ago my mother discovered a real estate investment opportunity. A luxury resort was accepting investors, so for the price of around P200,000, you can own a room at the resort and get a share of the profit whenever you rent it out. In my opinion, it sounded like a decent deal. It was somewhat risky as we don’t know how much business that new resort will get and the location might not be that good.

I had my doubts especially when they didn’t immediately send us the terms and conditions of the contract and they only gave us a brochure, but our family did have money for it. After my mother sent the first deposit and she started asking about the full terms, the representative finally told her the details. We’ll get to use or rent out a room… for one week every two years. We’ll also need to pay some maintenance fees every month.

That’s no investment. That was a scam! It was WAY different from the “own a resort room and rent it out” deal that the first promoter said. It was blatant false advertising. Although my mother couldn’t withdraw the initial P18,000 deposit, we were glad to have exited that scam before things got worse.

Well, that was just one example of a scam. What does it mean when something seems “too good to be true”? Let’s talk about the most popular kinds of scams here in the Philippines next.

Too Good to be True (and How to Spot Scams)

“Wanna meet up for coffee?”

In the Philippines, people dread hearing the terms “open-minded ka ba?”(are you open minded) or being invited by a friend or family they haven’t talked to for years “for coffee”. They’re usually tell-tale signs of an invitation into a network marketing business or scam (or they just want to borrow money. Still annoying). 

There’s a whole lot of multilevel marketing (MLM)/network marketing organizations, direct-selling businesses, and “pyramyding” (the local term for pyramid scams) in the Philippines, and a huge number of them promise the potential to earn millions of pesos. Some of it may be true, but it’s not as easy as they make it out to be, and that’s also IF the business is legitimate and not a scam.

So why do people keep falling for it even though many lose money? Simple. They come with the same promise: an “easy” way to get rich.

They KNOW it could be a scam… but they try it for the off chance that it could be real, and that THIS time they can make it work. Unfortunately, most of them simply fail.

Here’s a very valuable quote from O.S. Marden:

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Go slow. The gambling instinct, the effort to make a fortune quickly, a lot of money for a little investment, is the cause of more unhappiness, of the poverty condition in more homes, than anything else I know of.

— Orison Swett Marden, Prosperity: How to Attract It

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How I started learning personal finance

Before I learned anything about the world of money, I was invited to join a multilevel marketing company. At the time, I had no idea what it was. I thought it was just another salesman job with an added “recruit other salespeople” tactic, so I figured it was worth a shot. Our family grew up poor, so I thought selling health products on the side would be of great help.

Of course, I failed. I had a lot of “sell to this parlor/health store” ideas, but never had the guts to actually call them and do any selling. In the end, the P14,000 “startup fee” I paid earned me nothing… at that company at least.

Fortunately, the experience led me to Robert Kiyosaki’s Rich Dad, Poor Dad. I learned how important it was to never rely on a paycheck to earn a better life and why we should learn about personal finance and investing. After I graduated college, I invested a part of my paycheck until I became, in a way, financially independent, with a slightly higher net worth compared to others of my age.

While joining that company may have been a mistake, the lessons I learned was definitely worth it. It earned me over thirty times the amount I paid for it and MORE. (Read my “From Books to Riches” article here!)

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I’ve learned that when a man with money meets a man with experience, the man with experience ends up with the money and the man with the money ends up with experience.

— H. Jackson Brown Jr.

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Of course, pyramid schemes and real estate investment scams are not the only ones you should watch out for. There are many ways unscrupulous companies try to take advantage of our greed in order to get our money (and more). Some of these may not be as bad as other examples, but you should still be aware of them:

• Low Interest Rates, No Money Down – They seem good on paper, but remember to check the fine print. If you miss a payment or you pay late, they might slap on some pretty expensive fees and much higher rates, and that’s where they get you.
• Absolutely Free, Buy1-Take1 – Sometimes retailers add freebies to make a bad item look more tempting. If it’s on groceries, double check the expiration dates.
• On Sale, Huge Discount – Sometimes, retailers just use a fake discount. 
• Cheap “Brand name” Goods – Fakes usually don’t last long, and even if you saw an expensive “original” item at a reputable retailer, you still need to double check if it’s ACTUALLY genuine.
• Lotteries – Your odds of winning are incredibly low. You can spend a lifetime and thousands of dollars buying tickets… and get NOTHING. Don’t waste your money there. Invest it instead.
• Phishing scams – Received a strange “official” email saying you won the lottery or your bank needs an info update or something, and you just need to give your bank info? Beware! That’s most likely a scam to steal the money in your bank account!
• Investments recommended by your friends and family – Don’t blindly trust gossip, and don’t blindly trust what you read on magazines, books, and blogs (including ours). You need to do your OWN homework, and read multiple experts’ works to learn more. Remember, it’s your money. Don’t gamble it away on gossip.

Warren Buffett said “risk comes from not knowing what you’re doing.” That’s certainly true. If you don’t know what you’re investing in, you probably won’t be able to tell if it’s a scam or not. If you see a tempting deal or investment, do your research! Check to see if it’s real (and not a scam), and read the fine print. If something doesn’t seem right, be very careful, and remember the old saying: “If it seems too good to be true, it probably is.”

We’ll end here for now. I hope you enjoyed reading this week’s article! We’ll have more for you soon!

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