Hi…I know I got some of you to read because 1. I haven’t blogged in forever and 2. The title may have sounded like something you could use in your math class. I promise there is math involved, but it isn’t as apparent to the non-math folk when they hear about these things.
In the last 24 hours, I have seen people in my facebook feed posting about joining a holiday circle/loom for $100 and at the end you get paid out $800. They say it’s a great way to get some holiday money this season. PLEASE don’t be sucked into those holiday gift circle/money loom things and in fact, educate your students about them because at some point these will rear their heads during their adult lifetime. They are absolutely a scam, sure you MIGHT get your money but someone definitely won’t because it’s impossible. They are unsustainable because of exponential growth. (See…there’s the math)
Holiday Circles seem like such a great thing. They tell you everyone freely gifts $100 into person A’s paypal account and in a bit it you get to decide what to do with your $800. (They also float around in other start up amounts too.)
Wow, you say as the wheels turn in your head. Two fb posts later after seeing a friend post pictures of her paypal account growing by the hour, you freely send the $100 via paypal thinking of all the things you can do with $800. (Which is really $700, since you paid out $100, but they just assume you will understand that.)
You may even sign a special ‘contract’ that looks all legal and everything that says you voluntarily gift this money without any expectation of ever getting it back. Of course, as soon as you pay in your money you become one of the blue spaces above. Once there are eight new blue spaces, the purple person in the middle gets their $800 – an 800% payoff. The chart then splits in half and everyone moves up a level. The two pink spaces are now their own charts and they are purples, the green moves up to pink, and the blue are now one step closer to their own big payoff. Maybe.
Now, nobody is required to bring in new special friends to gift money but how else are you going to help make sure you have fun holiday money to spend? That, plus as soon as all your “blue spots” get eight new people to kick in you get one level closer to your own $800 jackpot. You start dreaming about what kind of things you can do with $800 and many people even join multiple looms once they start seeing and dreaming about the payout.
Posts by people involved that sound like this make it seem all okay, “It’s like pulling off of the church Christmas tree at Christmas time and shopping for a kid in need. Do we actually know if they get their gifts? No, but we only hope. We’ve all spent useless money for no reason at all. While you may be a skeptic, at least you know you helped a family at Christmas time this year. If we spread the holiday cheer we can make a lot of families happy. It’s time to put our own struggles aside and help ones in need. We’re all in here bc we could use the extra cash for Christmas. But blessed money comes from those who help.” And “its not a scam.. call it a “pay it forward tree” because that’s what we are basically doing”
I asked someone in my fb feed who is participating and posting to get others involved how does it end because mathematically I know these things can’t really keep going. After all, the numbers don’t really work. She said “oh, it never does, it just keeps going”. And then she asked me if I wanted in…um, not at all. She shared this with me…
So where’s the scam, you ask? It’s a reasonable question. Most of the time the people involved don’t see the crime, either. After all, the $100 is a gift that they give freely and without any expectation of any return so they’re not victims. Just like a $100 birthday present to your niece, right?
Wrong. Gifting Clubs are illegal pyramid schemes but they will try and tell you they aren’t because one person isn’t making money off the others. They’re done with really slick emotional appeal and promises of huge payoffs but sooner of later these clubs are going to run out of people to scam. It’s simple exponential math.
Lets assume you get in as one of the first blue spots. For all eight of you blue to move up to be green after the first split you need to recruit a total of sixteen new people. Then for all eight of you green to move up to pink you need to bring in 32 new people. It keeps going. All of your initial eight might get paid after 128 new blue spaces join, but to keep going and let everyone in the system receive their own $800 the scheme needs to bring in more people than exist on the planet.
If you do the math, there is logical, rational, left-brained evidence to support the conclusion that these circles are absolutely unsustainable in the end.
There is a mathematical certainty that up to 87% of the people who gift their money into a circle will lose their money.
To see the math in action, see this spreadsheet. You can play with it and change the variable on the number of times people re-up after cashing out so you can see what happens when people reinvest in the circles after receiving their gifts.
Bottom line: If 100% of people who complete the circle and receive their $800 in gifts rejoin another circle 3 more times, 80% of people who join will still lose their money. The best possible scenario would be that every person who completes the circle rejoins 6 times and you still end up with 50% of people losing their money.