{"id":4083,"date":"2015-12-30T18:56:45","date_gmt":"2015-12-30T13:26:45","guid":{"rendered":"https:\/\/teekhapan.wordpress.com\/?p=4083"},"modified":"2015-12-30T18:56:45","modified_gmt":"2015-12-30T13:26:45","slug":"why-you-get-cheated-by-friends-and-relatives","status":"publish","type":"post","link":"https:\/\/vivekkaul.com\/2015\/12\/30\/why-you-get-cheated-by-friends-and-relatives\/","title":{"rendered":"Why you get cheated by friends and relatives"},"content":{"rendered":"


\n<\/a>
\n<\/a>\"rupee\"<\/a>
\nOne of my abiding memories of growing up in a small town is of my father and his friends talking about insurance agents and chit fund agents taking money and disappearing. Usually the agent used to be someone known to them. One story that I remember is of the local dhobi\u2019s <\/em>(washerman\u2019s) son raising money for a chit fund and then disappearing.<\/p>\n

The present day version of this plays out when people invest in wrong kind of insurance policies where the agent commissions are very high or in Ponzi schemes which promise high returns. Ponzi scheme are essentially financial frauds where the money being brought in by the new investors is used to pay off the older investors whose investment needs to be redeemed. They collapse the moment the money leaving the scheme becomes higher than the money entering it.<\/p>\n

One version of the Ponzi scheme is a Ponzi scheme masquerading as a multi-level marketing scheme. Those who invest in such schemes end up investing through relatives, friends, neighbours etc. These are essentially people they know and they trust.<\/p>\n

One reason why people end up investing money in such avenues is financial illiteracy. While people work hard at earning the money that they do (in most cases), they are very lazy when it comes to investing this hard earned money. They don\u2019t like to carry out any basic research and just hand over their hard earned money to others who they trust.<\/p>\n

Hence, trust is another factor at work. In many cases where individuals end up making wrong investments, they invest through an agent who is either a friend or a relative or perhaps someone known to them. This situation is termed as an affinity fraud.<\/p>\n

Jason Zweig defines affinity fraud in his book The Devil\u2019s Financial Dictionary<\/em> as \u201ca financial crime committed by someone with an affinity for doing terrible things to his friends, as when a crook promotes a bogus investment to members of his church, social club, ethnic group, or other close-knot community.\u201d In the Indian context Ponzi schemes masquerading as chit funds or multi-level marketing schemes and being sold to members of a closely knit community are a very good example.<\/p>\n

So why do people become victims of the affinity fraud. As Zweig writes about people who victims of the affinity fraud: \u201cThey trust him [the agent\/the crook] because they know him so well. In return, he trusts them not to notice that he is stealing their money.\u201d<\/p>\n

In fact, the human need to trust others and be social is a direct impact of evolution and the fact that human beings are born prematurely in comparison to other animals. As Yuval Noah Harari writes in Sapiens\u2014A Brief History of Mankind<\/em>: \u201cHumans are born prematurely, when many of their vital systems are still underdeveloped. A colt can trot shortly after birth; a kitten leaves its mother to forage on its own when it\u2019s just a few weeks old. Human babies are helpless, dependent for many years on their elders for sustenance, protection and education.\u201d<\/p>\n

And this led to a situation where human beings have had to be social and in the process trust the people around them. As Harari writes: \u201cRaising children required constant help from other family members and neighbours. It takes a tribe to raise a human. Evolution thus favoured those capable of forming strong social ties. In addition, since humans are born underdeveloped, they can be educated and socialised to a far greater extent than any other animal.\u201d<\/p>\n

Hence, for human beings to survive and progress in the society, they need to be social and trust the people around them. And this as Harari writes \u201chas contributed greatly both to humankind\u2019s extraordinary social abilities and to its unique social problems\u201d.<\/p>\n

One of these social problems is the affinity fraud where we trust others with our money. And sometimes this turns out be a huge blunder. So, the next time you lose money by making a wrong investment through someone know you know, you can blame evolution for it.<\/p>\n

(Vivek Kaul is the author of the Easy Money <\/em>trilogy. He can be reached at vivek.kaul@gmail.com<\/a>)<\/p>\n

The column was originally published in the Bangalore Mirror <\/a>\u00a0on December 30, 2015.<\/p>\n","protected":false},"excerpt":{"rendered":"

One of my abiding memories of growing up in a small town is of my father and his friends talking about insurance agents and chit fund agents taking money and disappearing. Usually the agent used to be someone known to them. One story that I remember is of the local dhobi\u2019s (washerman\u2019s) son raising money … <\/p>\n

Read more<\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"qubely_global_settings":"","qubely_interactions":"","_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[7,29,60],"tags":[1873,2775,3634,4045],"qubely_featured_image_url":null,"qubely_author":{"display_name":"Vivek Kaul","author_link":"https:\/\/vivekkaul.com\/author\/vivekkaul\/"},"qubely_comment":0,"qubely_category":"Bangalore Mirror<\/a> Easynomics<\/a> Ponzi<\/a>","qubely_excerpt":"One of my abiding memories of growing up in a small town is of my father and his friends talking about insurance agents and chit fund agents taking money and disappearing. Usually the agent used to be someone known to them. One story that I remember is of the local dhobi\u2019s (washerman\u2019s) son raising money…","jetpack_sharing_enabled":true,"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/posts\/4083"}],"collection":[{"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/comments?post=4083"}],"version-history":[{"count":0,"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/posts\/4083\/revisions"}],"wp:attachment":[{"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/media?parent=4083"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/categories?post=4083"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/tags?post=4083"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}