By Sylvia Jjuuko

The year 2024 is still unravelling, but some unsuspecting individuals have fallen prey to another bogus investment. It always baffles me how one would voluntarily hand over their hard-earned money when memories of the loss of money by victims of the ‘chicken’ investment scam are still fresh in our minds.

Nonetheless, having interacted with different individuals that find themselves hapless victims, there are several reasons why even the relatively educated people fall for such bogus investment schemes.

For starters, lack of access to comprehensive financial education programmes renders individuals (both low and high-income earners) with none or limited knowledge about investment fundamentals. What may seem to a money-savvy person as a red flag when you encounter promoters of bogus investment schemes presents as an opportunity for individuals who lack the ability to discern legitimate opportunities from fraudulent ones. Others have some knowledge of financial education, but feel they are too smart to be duped by promoters of such bogus investments. In the end, all have lost their hard-earned money.

Another key reason why the best of us fall for bogus investments is greed. Once you encounter economic challenges, a section of income earners seek quick financial gains with the hope of improving their living standards quickly. With such a mindset, bogus investments whose promoters make false promises of above market returns overnight are very appealing to those who aspire to get rich quickly. At the same time, there are several wannabe millionaires publicly displaying their possessions. It gives this lot the hope that maybe they have a shot at getting rich quick to join that class. Such a person with that mentality cannot be dissuaded from handing over their hard-earned money, particularly if there are testimonies of the early recruits to the bogus scams. They forget that by the time they are recruited, the income they bring on board cannot sustain the earlier members, causing the scheme to collapse.

The marketing language used by promoters of bogus investments is so persuasive that people tend to fall for it. The common trick used is the creation of urgency and perceived secrecy or exclusivity to this high and consistent return on the said investment. Usually, you will be informed that only a limited number of clients can be able to gain access and the window for decision making is short.

Given the fear of missing out, the hapless victims tend not to question the legitimacy of the bogus investment because they are trying to beat the entry deadline. This conspires to produce losses for the unsuspecting victim.

Another reason why individuals fall for bogus investments is the level of informality associated with such scams. The promoters, knowing that individuals, especially in rural areas are uncomfortable with the formality of legitimate investments, find it easy to lure them to opt for something that will not require formal processing. The modern investment practices where you must fill in several forms, produce personal information for purposes of ‘know your client’, is intimidating for beneficiaries and discourages them to opt for modern investment practices. Some of these have what they perceive as complicated formulas to calculate the return on investment. They will get biased and gravitate towards informal methods that make them susceptible to fraudulent investments. Relatedly is the lack of formal financial service providers in a remote community. This gap creates a fertile ground for the promoters of so-called lucrative opportunities to rescue the community from poverty.

Our society is so susceptible to a bandwagon effect. When you ask how these individuals got lured into the schemes, they will cite peer influence and the power of word-of-mouth marketing. It is very likely for individuals to opt for a scheme if their community participates and appear to be benefiting.

The so-called beneficiaries who have the advantage of a head-start to joining the bogus investment will sing praises about it to their peers. This will create a mad rush for the bogus investment, which amplifies its reach. The deeper the reach, the more impact the bogus investment will have on the community once it collapses.

All in all, the rule to live by is if a so-called investment lacks a regulator to provide oversight and opportunities for recourse, avoid it like the plague. At the same time, if they promise overnight above market returns, yet they don’t clearly explain where your money is being deployed, give such promoters a wide berth. It also helps if you continuously educate yourself about legitimate investment opportunities and undertake due diligence before you deploy your resources. Financial literacy will empower individuals to make informed financial decisions.

The writer works with Bank of Uganda.

Personalfinance222@gmail.com