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?
