Social media has no shortage of people who want to separate you from your money.
- MLMs frequently recruit people on social media for supposed business opportunities, but only those at the very top earn money.
- Fake gurus use social media to find buyers for low-quality, heavily overpriced courses and mentoring sessions.
- Social networks also have their fair share of investment scams, including Ponzi and pump and dump schemes.
Social media makes it easy for people to connect, and that has its pros and cons, to put it lightly. One of the dark sides of social media is how shady characters use it to make money. There are questionable business ventures, pump-and-dump investment schemes, and a whole lot of other money pits.
If you’re unfamiliar with these schemes and how they operate, it’s easy to get sucked into poor personal finance decisions. After all, the people that run them know exactly what to say. To know what to look out for, here are the most common financial scams you’ll see on social media.
Multilevel marketing (MLM) is a business model where you sign up to sell a company’s products directly to consumers and earn commissions on sales. You can also recruit other people to do the same thing. Anyone who signs up under you is your downline, and you get a commission from their sales, as well.
People involved with MLMs often use social media to find potential recruits. Their pitches typically involve claims of how you can start making money on social media, become your own boss, and take control of your financial future. Examples of popular MLM companies include:
- Mary Kay
The problem is that for all the talk about how great these supposed business opportunities are, hardly anyone makes money. Seriously. The FTC researched it and concluded that “less than 1% of MLM participants profit.”
If you ever get an MLM pitch and want to be sure you’re not missing out, search online for the name of the company and the words “income disclosure.” What you’ll find is that the only ones who make anywhere near a full-time salary are the top 0.5% to 1%. Take Amway, for example. The average income was $766 in 2021, before expenses, like the $76 annual registration fee.
2. Fake gurus
Spend enough time on social media or YouTube, and you’re probably going to run into ads by fake gurus. The star of the video displays some obvious signs of wealth, like a flashy car or a luxury apartment. They go on a spiel about how they used to be completely broke, but now they’re super successful and want to teach you how to live your dream life. There are also a lot of talking points they all seem to parrot, such as:
- 9-to-5 jobs are for losers.
- College is a waste of time (and you can bet they’re going to mention Steve Jobs and Bill Gates to prove this theory).
- You can be a billionaire. In fact, anyone can! Never mind that the people saying this in their videos aren’t billionaires themselves.
The whole point is to get you to click a link and work your way down their sales funnel. It may start with an e-book, then an overpriced course, and then private mentoring sessions costing $10,000 or more. They’ll make it seem like this is an investment in yourself to convince you to max out your credit cards and drain your bank account.
Although there are fake gurus in multiple industries, most of them gravitate towards the “how to make money” niche. They’ll whip up courses with information you could’ve gotten for free about topics like selling on Amazon, dropshipping, real estate investing, or forex trading, to give a few examples. But make no mistake about it — what they’re really selling is a dream.
After all, if someone has such a great way to make money, wouldn’t they just do that instead of hocking courses. The truth is that these fake gurus aren’t successful because of real estate investing, or day trading, or dropshipping. Their real business is the get-rich-quick schemes they sell.
3. Investment scams
For as long as people have been investing money, there have been investment scams. These come in many forms, but they all lure in victims with promises of big returns. One well-known example is the Ponzi scheme, where the scammer uses money from new investors to pay older investors (after taking a healthy chunk of it). Eventually, there’s not enough money coming in to pay everyone.
Another investment scam that happens all the time on social media is the pump and dump. Here’s how it works:
- A friend, acquaintance, or a total stranger posts about an incredible investment opportunity in a small company. They don’t mention that they own a large portion of the company already.
- People buy the stock the scammer recommended, pumping up the price.
- The scammer dumps (sells) all their shares at the now higher price, making a tidy sum.
- The stock price plummets because of the sale, leaving those recent investors high and dry.
Recently, pump-and-dump cryptocurrency scams have gotten popular. These are even easier for scammers, because anyone can create a cryptocurrency and start pumping it. They were especially prevalent during the crypto bull market in 2020 and 2021, but they’re still happening today.
No one deserves to lose their money to a scammer. Unfortunately, financial scams are all over social media, so be very skeptical of anything that sounds too good to be true. For example, earning five figures per month from your home, with no experience or skills required, just isn’t going to happen.
If you’re ever unsure about a supposed financial opportunity, research it. Search for it online, and try adding the keyword “scam,” as well. If it’s a scam, you’ll likely find plenty of stories from past victims. Most importantly, always err on the side of caution.
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