I have talked a lot here about MLMs, also known as multi-level marketing businesses or pyramid schemes. If you’ve read anything I’ve written about these in the past, you know that 99% of people who join MLMs end up losing money. The lucky ones break even. But knowing all of that, why do people still fall for MLMs?
I can all but guarantee that you have been solicited by someone in an MLM. Maybe not to join the MLM, but you have very probably been invited to a party or meeting, in person or online. Have you ever been to a Tupperware party? Have you seen people hosting Facebook parties for LuLaRoe? Has someone tried to sell you Amway or Cutco knives? Have you been to an unbranded shop that sells “loaded teas?” That’s probably Herbalife, yet another MLM.
People try to get you to buy items from their parties because even if they’re not selling, they stand to benefit with bonus products or discounts for the company. Frequently those people end up getting convinced to sell. “With your discount, you can join us for cheap, get all this free stuff, and you can make some money too!” And then suddenly your friend isn’t inviting you to a party but is trying to get you to buy from them. And you start to feel like you should buy because you’d be helping your friend out financially.
False Financial Promises
A big part of the predatory marketing that causes people to still fall for MLMs is false financial promises. People try to get you to sign up to these companies by promising you that you will quickly make money, that they’re pulling in enough money to cover their groceries or their mortgage or their car payment. If you do any investigation into these companies, you’ll see very quickly that the vast majority of people in the company aren’t actually making much money at all. Sure, they might be getting paychecks, but how much are they spending on their product or the marketing they have to do? What’s the actual bottom line?
And speaking of car payments, a lot of these companies say you can “earn a free car!” But can you really? What you can do when you get to a certain point is earn enough for a monthly car payment. But to get that car payment each month, you have to make certain sales goals every single month. And car loans are often 60 months. Can someone really make all of those sales goals for 60 months in a row? Because frequently, missing one month means that you’re out of the program. And the company isn’t leasing the car for you. You’re doing it yourself – so suddenly you have to make that payment.
Get Rich Quick and Easy
One of the things I see all the time that makes me so mad is when women say “Look, I get to run my business from home and be my own boss and be home with my kids! And I can work from anywhere!” But then they’re taking so much time away from their kids in order to run their business. People post pictures of being able to work from the beach. And sure, you can do your job at the beach. But when I’m at the beach, I don’t want to have to work! I want to take a vacation. I don’t want to work at any hour – I like having a set schedule. You’re going to have to spend a lot of time and money to break even, especially after a few months. Sure, you might have a good first few months as you reach out to your friends, but eventually you’re going to run out of customers and have to really work to try to find more. It’s not quick, it’s not easy, and you certainly aren’t going to get rich.
But it’s certainly a tempting offer, especially for moms who want to be able to spend more time with their kids. I get it. But you know what? My kid THRIVES in daycare, I go to work, and then when he’s home with me, we get to spend our time together, not with me trying to work while he plays alone.
Megan is a 40-something government employee in the Washington, DC area. She got interested in Personal Finance when she got out of college and realized that her paycheck wasn’t going to go as far as she had hoped. Since starting this blog, she has managed to buy a house and make a solid start on her retirement goals, and hopes to help others do the same. Here is her story:
In 2007, I was a gainfully employed 20-something with no debt but not a lot of knowledge about personal finance. It was a co-worker’s comment about Roth IRAs that sent me to the internet, searching for information. It was then that I realized that I really didn’t know a whole lot about personal finance and that my current financial situation was due a lot to inherent frugal tendencies, generous family members, a fear of debt, and good luck. While that was working for me, clearly I needed a better plan.
While I had no debt, I was also pretty much living paycheck to paycheck and not worrying about going over budget (I say this as if I had a real budget) because I had an emergency fund set aside to cover any overages.
Except that’s not what an emergency fund is for.
So I did a lot of research, read a lot of blogs, and decided that I needed a plan. I needed to budget. I needed to know what I was spending my money on. I needed to prepare for the future.
I decided to create a blog not only to make myself accountable to others but also to share the knowledge that I gained along the way. I’ve learned so much from my fellow bloggers, and I hope that my readers can find something useful in what I have to share as well.
Can you please name a recent MLM in the new year so we can be on the lookout. Thanks. To many people are falling for these scams.
Megan Smith says
LiveGood and Total Life Changes are two that are brand new and actively recruiting.
You’re so right. I looked them up. Same product on Amazon for less cash. What a rip off.