Personal-Finance

Why we fall for scams

2017-03-17 13:47

I was recently watching the Carbonaro Effect, a TV show where a magician plays practical jokes on the public. In this particular episode, Michael Carbonaro was impersonating a shop assistant in a toy store and, as customers came to the till, he demonstrated some amazing toys.

In one demonstration, he turned a clay frog into a real one by adding water and, in another, a sticker of a fish came alive when added to a fish bowl. He also managed to blow glass bubbles from a children’s bubble bottle.

The stunned customers immediately purchased the toys, even arguing over who got the last box – because, of course, he always tells them that these are the last items available.

None of them questions what they are seeing right in front of their eyes. They saw it happen, so it must be true. One sceptical woman did ask to blow the bubbles herself, so Carbonaro handed the bottle over and made a quick escape.

No doubt the director edited out people who saw right through the trick, but there were sufficient believers to make for amusing television.

This struck a chord with me because it is exactly what happens when it comes to investment scams. People so badly want to believe in easy money that they believe in the impossible. Why did the individuals in that toy store so easily believe a sticker could actually turn into a fish?

Firstly, they were not expecting a magic trick – they believed Carbonaro was just a shopkeeper, so they weren’t watching out for skulduggery. Secondly, they clearly had no comprehension of science and why it would be impossible for a paper fish to come alive. Finally, I think that we all inherently believe in miracles; that there is more to this world than we really understand – the very principles of religion and prayer are based on this belief.

The same applies to investment scams. Often you are introduced to them via a friend who has made money, or claims to have made money, out of the scam. If it was just some random person knocking on the door who had a shifty look in their eyes, we would be a lot less likely to invite them into our homes, let alone give them money.

Report scammers to SARS

If you suspect an individual or company of trading illegally, you can help to combat fraud by submitting their details to the SA Revenue Service (Sars).

Many schemes are very careful to operate outside the jurisdiction of the various regulators, making it difficult to find redress.

However, it is more challenging for them to circumvent the long arm of the taxman, as was demonstrated in the infamous story of the 1920s US gangster Al Capone, who ended up in jail due to tax evasion.

If an individual or company is accepting public money and promising profits, they have to be registered with Sars and pay taxes.

As Sars is bound by taxpayer confidentiality clauses in the Tax Administration Act, it cannot provide you with information on the company or individual, but it can investigate any alleged suspicious activity to determine whether fraud is occurring.

You can contact the Anti-Corruption and Fraud Hotline on 0800 00 2870 or complete the online suspicious activity report form on the Sars website at sarsefiling.co.za.

Then there is the fact that many people do not understand how money works – why a pyramid scheme is simply not viable, and how simple maths will show that it will implode; why any rate of return above that of interest paid by a bank would inherently carry risk; or why, just because a passive investment business has lots of complex spreadsheets, it doesn’t make it an investment.

There is also a belief that we deserve better and that maybe this time our guardian angel is smiling down on us, and we are one of the lucky few who will be blessed with the knowledge of this amazing scheme that will turn us into millionaires.

It is this belief that can make us blind to the obvious. So, if you do not want to fall victim to one of the hundreds of scams out there, remember this:

People lie for gain: Do not believe everything you hear or read – especially through social media. Testimonials can be invented or paid for. Pictures can be taken next to helicopters or fancy cars – it doesn’t mean they are actually owned by the person in the picture.

You are not stupid: If you do not understand exactly how the scheme makes money, it is not because you are stupid, it’s because there is nothing to understand. Keep asking questions – if the answers sound vague or if you are put under pressure to “buy now”, walk away.

Get-rich schemes are not miraculous: Miracles may exist, but not in get-rich-quick schemes, unless, of course, you are the person selling the scheme. Unfortunately, many scammers use religion and prayer to convince people of their “honesty”. Just because someone can quote verses of the Bible or claims to be religious, it doesn’t mean they are.

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September 17 2017