When Feeling Close Brings Bad Money Judgment

September 1, 2009 by  
Filed under Fools of Finance

bad_judgmentAre you one of those people who bonds well with others? Do you enjoy sharing and working toward goals with a sense of friendship and camaraderie?

Good for you. But before you jump into a collective project, think about leaving your wallet and credit cards at home.

This article in Bloomberg shows us that being tight with our like-minded friends, neighbors, and church-goers can often be very bad for our money.

The article summarizes a pattern of affinity-based financial scams. It features a group of Mormons who were sucked into a scheme to broker the sale of 20,000 tons of gold from a group of Israelis to a group of Arabs.


How many different alarm bells should have sounded when this financial “plan” was presented. Let’s start with the fact that 20,000 tons of gold is more than twice the size of U.S. bullion reserves. Who has that much to sell?

Not to pick on Mormons, but it seems they have a particular affinity for being duped and then passionately defending their stupidity. Check this quote about a BYU Professor who tried to intervene:

Hill says he confronted the power of belief over reason when he learned about 12DailyPro, an Internet advertising business being pitched to students at the Mormon-affiliated university that promised returns of 44 percent in 12 days.

When he sent an e-mail warning students it was a pyramid scheme, he says he received death threats from some investors, which he reported to university security officials.

Nice. Read the entire article. You will shake your head in amazement at how trust and greed made a dangerous combination.

I remember being invited to the house of a work colleague when I was a young engineer at Motorola. I was promised information about an “exciting opportunity.” I didn’t know what that meant exactly. But this was a brilliant engineer far senior to me, and this being my first real job, I felt a pull to attend with a some of my fellow rookie engineers. Yep. It was an MLM presentation. And, no, I didn’t buy in. I excused myself in a hurry.

I still remember the guy’s name, a weird Swedish name. That experience has stuck with me for 35 years. It helped put Mr. ToughMoneyLove on a path of being a financial skeptic.

Family ties can be equally problematic. This is a recent query to Dear Amy by a teen worrying that her uncle was exploiting her broke grandmother:

I am a senior in high school, and I’ve recently learned that my uncle is taking advantage of my grandmother. He calls her constantly begging for money, and when she refuses, he continuously calls her until she picks up.  Amy, my grandmother is up to her neck in debt and has nothing left to give, yet she takes out loans just for him. I’ve talked to my parents and they say not to get involved, but how can I just sit by and watch this train wreck happen? Isn’t there anything I can do?

If this “uncle” were my sibling, there would be an intervention, perhaps involving rigid objects against fragile body parts. Fortunately, I don’t have that problem. Grandma clearly was an enabler but that doesn’t excuse the uncle’s actions.

Back when I first started this blog, I wrote about not lending money to friends and using tough love responses if a reckless family member asks for a loan.

It seems that these same principles should be extended to other affinity groups as well.

Photo credit: clover_1

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8 Responses to “When Feeling Close Brings Bad Money Judgment”
  1. katy says:

    Excellent post. Boy, this brought up a lot Mr. TML. Particularly with family ties. My FIL and MIL each sold several apartments/or left rent controlled apartments in Manhattan over the years that would be in the millions today. MIL also sold two houses in PA and given the proceeds to her church. A church that didn’t help her when she needed it. Emotions and money don’t always mix.

  2. I had a high school teacher I was close to that emailed me while I was in undergrad and told me he had an “exciting investment opportunity for me.” I dropped by his classroom when I was in town and quickly saw what he was into for what it was (a pyramid scheme). I told him I’d think about it and never got back to him. I’m not sure how I should have handled it. Maybe I should have explained to him what it was and why it was such a bad deal for him. I think I was worried that that would seem condescending. He was older than me (obviously) and had been my high school baseball coach. I don’t know how he had never encountered investment schemes before. Very nice guy. I guess he learned that lesson the hard way.

  3. MasterPo says:

    Good article.

    Many times in my adult life I have been approached by people, friend and just causuals, to “invest” in their busines. When I ask to see their business plan, articles of incorporation, name of their attorney and accountant, they clam up VERY quickly!

    Too bad. I wouldn’t mind being an “Angel” investor in a good small business. It would be fun (and hopefully profitable!).

    Some years ago I saw a finance show that featured (among other topics) a husband and wife that had their own company that manufactured and sold educational toys and games for small kids. The couple owned 51% of the stock and had 6 or 7 private investors owning the rest. That looked great!

    I regret never having found such a legitimate opportunity. :-(

  4. lurker carl says:

    It’s especially common in churches when the church leaders invite a con artist to preach a scheme to the congregation. The elders would never allow a thief to rob the flock. Anyone who attempts to expose the fraud often gets shouted down and reprimanded. No thinking allowed.

  5. MasterPo says:

    Lurker – Then what’s in it for the church leaders? A cut of the take?

  6. kitty says:

    Good article. It is so easy to get caught in one of those scams. Especially if the person who offers this “opportunity” looks nice and is part of your group.

    I’ve been very fortunate with my relatives and friends though. We’ve been borrowing/lending to each other forever and have never had problems. I have cousins in Russia and whenever I go there I bring tham some cash. Even though they have very little, they still always refuse. I have to work very hard to get them to take the money they clearly need. When I totalled my car, several friends called me and offered to lend me money if I need. When my friend had a temporary cash flow problem – she was about to lose her job and wanted to max out her 401K in less than 6 months – I lent her a few thousand for 3 months. She returned it to me in less than 2 months.

    A question. How would you react if someone who works in your building but not in your department suddenly came to your office and asked to lend $70 for 3 days? Someone in building maintenance whom you don’t know personally except for smile and say Hi when you see them working; maybe occasionally she complimented you on your clothes and you told her where you bought it.

    Our building’s cleaning lady suddenly came to my office last week and asked to lend her money. She doesn’t speak English very well and my Spanish is rusty so I didn’t catch why, she was speaking too fast. I refused – I simply didn’t have that much cash on me (not sure what I’d have done had I had it) – but I’ve been feling a little guilty about it since. After all, I could’ve gone to an ATM and maybe this was a real emergency for her to come to a stranger, something serious. Sure, I have no reason to trust a stranger, so it may have been a gift. Wish I knew her reason. What do you think?

  7. Lurker Carl says:

    MasterPo, I would assume the church leaders have been hoodwinked as well if they are not part of the scam.

  8. cjbr549 says:

    The old adage “If something is too good to be true, it probably is” should be taught to everyone at a very early age. And I would leave out the “probably”. For that very reason I was a bit dismayed that Bernie Madoff got 150 years for his crimes. Yes, he stole allot of money from allot of people, but he used their own greed to do it. If his investors (some of which knew it was a fraud, they just thought it was a different kind of fraud) had heeded this warning, he would not have been able to do what he did. People are serving less time for premeditated murder than Madoff got. I think it’s in most peoples nature to give people, especially those you are close to the benefit of the doubt, and that’s what these schemes pray on. You usually have to get burned a time or two before you figure it out, and that plays into these schemes as well. There’s always a fresh crop of suckers.

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