Last week the promoter of Telexfree, Uganda's latest Ponzi scheme, was arrested by police and charged with perpetuating fraud.
According to reports the scammers had roped in hundreds of gullible Ugandans, with one victim claiming he had staked $350,000 (sh910m) in the hope of making up to 20% a month on his money!
Assuming these returns were to materialize it means this hapless victim would have been doubling his money every four months. So if he loaded his account on January 1st by Christmas he would be looking at an account balance of $2.8m -- assuming no withdrawals.
Was this a fantastic deal or was this a fantastic deal? Murphy's law goes that, if something is too good to be true it is (too good to be true).
Also in the same week Professor Augustus Nuwagaba explained in this paper that among other things more people are not emerging from poverty for lack of financial literacy. Financial literacy allows one to not only keep the money they earn but also enables them to make that money work for them.
So if for instance one earns a million shillings a year and saves sh100,000 but can they grow that money by deploying it in profitable endeavors?
In order to get optimal returns for ones money one has to know what is an acceptable return in your context. In the more mature economies single digit returns are laudable, in Uganda by placing money in Treasury bills or bonds one can make up to 12% annually. That should serve as a useful indicator of what is possible or not.
Then one has to be familiar with how the company makes its money, the costs the company incurs, how it creates value and whether their business model is sustainable under competition.
For the life of me I couldn't work out how Telexfree was making money. The theory was that they would place a number of ads on a website and they would get paid. I guess the thinking was that they would be paid per click. But the clicks can't be constant every month so how could the promoters guarantee a constant return? And why would someone else need other people to do it for him and share the profit, why not hire a few dozen eager kids to do it instead and pocket more of the profit? one of the red flags of these scams Is there are often people willing to share in their good fortune out of the goodness of their hearts!
But on the other hand this kind of gullibility is not an inherent flaw in our psychs as Ugandans. It is part of the human condition that we will always be susceptible to making easy money, partly because making genuine money takes time and discipline.
As human beings Our minds are wired to simplify the bigger picture. To find shortcuts to an intended objective. So we read that so-and-so makes a few millions from his real estate business and our conclusion is that he is lucky, that is easy money. We however are seeing the finished product. We don't explore the work that they put in, the frequent trips to the site, the sleepless nights spent wondering whether they would meet loan obligations and the months even years of forgoing good cloths, a new car or more trips abroad to build the business.
But more importantly we think making money is about what we do, but the best of them know its more about how they think more than what they do that makes he difference between being financially secure or blowing up their money.
So for example whereas us mere mortals place a high premium on cash, the genuine
rich man is keen to convert the money as it comes in into incoming generating assets. They are willing to forgo the fat bank account today for a stronger asset base that will keep throwing off cash well into the future. Making money work for them.
Not to kick a man while he is down, but our man -- its invariably men who are hit in these high risk high return scams, who put down nearly a billion shillings on Telexfree clearly does not have the mentality of a rich man, which begs the question, how did he make the money in the first place?