You may see them marked as spam in your email. You might get a call from an unknown number. You could even be contacted through a direct message on Instagram. “Get rich quick” scammers try to reach you in any way they can in order to convince you to funnel your money through them, all while promising you fast, easy money.
A constant hustle for funds can lead college students to questionable investing and entrepreneurial pursuits, the most dangerous of which are “get rich quick” scams. Instead of actually making a profit, students may just be helping the scammer maintain and spread their scheme.
By not investing in false opportunities, you not only avoid losing your own money, but you potentially save someone else from losing theirs as well. Here are 6 tips to avoid falling into a “get rich quick” scam, so you can save your money for real investment opportunities down the line.
1. Know the Tricks.
The first step in avoiding “get rich quick” scams is to know what you are up against. By knowing the common schemes that young adults and college students fall for, you can identify them without the hassle of extensive research.
- Ponzi scheme – This scam, named after the infamous Charles Ponzi, can lead victims to believe for an extended period of time that their investments really are paying off. The scammers take the money of new “clients” to convince old ones of growth. This scam only works so long as the victims don’t demand all of their money back and the firm keeps pulling in more “investors.” A company with abnormally steady returns could be utilizing a Ponzi scheme.
- Pyramid scheme – These schemes are easy traps for students to fall into, and they are difficult to catch. Rather than selling a meaningful product, this business model relies on recruitment. Victims are encouraged to recruit more people, and joining usually requires some sort of upfront payment, like a membership fee or the purchasing of a product to resell. Pyramid schemes are not sustainable; when they do collapse, the vast majority of recruits will have lost money rather than gained it.
- Low-risk, High-reward – The very name of this scam should tip you off that it might be a false promise. In investing, high returns are a reward for risking a lot. However, scammers will often promise the victim a high reward for a small sum, “guaranteed.” Be wary of anyone who promises too much, too quickly.
- Becoming a “Partner” – Scammers might offer you a share in their fake or illegitimate company. This may seem like an amazing opportunity, but be wary of taking on additional liability. A partner in a firm may be responsible for its actions, which can lead to some serious trouble if it’s been up to no good.
- The Advance-Fee Scam – This category includes the infamous Nigerian Prince and Spanish Prisoner scams. In this case, the scammer will offer a huge sum of money, which can supposedly only be accessed if the victim provides them with a small up-front payment. Modern scammers can hack your friends’ email accounts and use them to ask you for money, or send you text messages claiming to be someone you know or an organization you trust.
2. Ask yourself: Why me?
Why were you specifically given the opportunity for this investment? Where did you find out about it? Was it from some guy you kind of knew in high school, a cold call, or a random internet ad? All of these sources could very likely lead to a scam.
Remember that pyramid schemes rely on recruitment techniques to perpetuate their scams. They draw college students into the scheme in order to trick exponentially more people into investing in the business, and in the end, almost everyone loses.
You should also keep in mind that scammers often target people who they believe are easy marks, such as the older generation or the inexperienced and young generation.
3. Google and stalk.
Do your research before investing a single cent. You may already do this for other products, but it can be easy to lose perspective when easy money is on the line. Google can serve as an uncomplicated way to check for the validity of a company, though sometimes Google is not enough. Many scammers are becoming more sophisticated and have legitimized their web presence.
Even if you do see evidence of online reviews, look for financial documents that are approved by the U.S. Securities and Exchange Commission (SEC). While perhaps overly complicated and difficult to read, you should also check their 10-K (a company’s annual report) to make sure the information available at least matches the information the salesperson gave you. This will take you one step closer to verifying the opportunity being offered to you is legitimate. Unfortunately, SEC-verified documents are only available for publicly traded companies, so you may have to request documents from the salesperson. As with anything they give you, take it with a grain of salt.
4. Don’t rush yourself.
Scammers will often attempt to instill a sense of extreme urgency in you with fake deadlines or warnings—don’t fall for it. Any real investment opportunity would give you the chance to thoroughly vet them first. Good companies prefer their investors to be knowledgeable and informed, which is why they self-report a lot of valuable information. It’s the fake ones that don’t want you to do proper research.
5. Is it too good to be true?
After you’ve done your research and seen all of the numbers, make sure you really question if the deal is too good to be true. If making money quickly was easy, everyone would be rich. Any real investment comes with some risk; if the salesperson attempts to assure you that there is none, then they are either exaggerating or scamming you. Be wary and carefully weigh the risks of any investment, even if you’re certain it’s not an illegal scam.
As a student, it can also be difficult to make this determination. It’s a good idea to talk to an independent authority before investing any large sum of money. Exercise caution when in doubt.
6. Report, report, report!
If after all of these steps you believe you have encountered a scammer, report them! The Federal Trade Commission is the primary agency you would report a scam to, but there may be a local, more immediate organization that can act faster. For example, many universities have an Information Security Office where you can report scams, especially those you encounter through your university email or on campus. By reporting fraudulent activity, you may be able to help another college student avoid falling for a “get rich quick” scam.