How to explain what a Ponzi scheme is?

Question

Hi, can someone tell me how to explain what a Ponzi scheme to someone with almost no financial intelligence is? Keep it very simple please. Thanks!

Answer 1

Best Answer - Chosen by Voters

A Ponzi scheme is a fraudulent investment "business" that promises lots of money to new investors, and gets that money from others who join the business later, rather than from any actual profits generated from a real business. It is named after Charles Ponzi.

The scheme usually offers abnormally large, quick returns (profits) in order to constantly entice new investors. The problem is that it is necessary to keep a constant influx of new "investors" in order to keep the scheme going, and in order to pay out the earlier investors.

Here is a Wikipedia link:
http://en.wikipedia.org/wiki/Ponzi_schem…

Hope this helps!

Answer 2

A "ponzi" is the person you set up for failure, explicity to benefit from their failure.

Answer 3

"A Ponzi scheme is a fraudulent investment operation that involves paying abnormally high returns to investors out of the money paid in by subsequent investors, rather than from the profit from any real business."
http://en.wikipedia.org/wiki/Ponzi_Schem…

Answer 4

Ponzi never invested any of the money he received. He printed out paperwork that looked like he had "invested" the money but he never did. He kept the money himself. When anyone wanted their "profit" , he wrote them a check.
To keep people from demanding their money, he wrote them monthly statements showing that they were making huge profits. They would be foolish to take their money out now. So they would leave it in.
He kept taking in new money because everyone told their friends how great his investments were.
A Ponzi scheme works until lots of people start to ask for their money. Ponzi had spent the majority of the money on fancy houses and fancy cars..

Answer 5

A Ponzi Scheme is simply 1 of 3 things.

1.A Bubble approach (like the housing market),

2. Robbing Peter to Pay Paul (what Berrnard Madoff did)

3. A Pyramid Schemes (the same DVD you've seen with a guy driving a Ferrari)

Just think..if it's too good to be true and involves $$, then it's most likely a Ponzi Scheme

Source(s):

http://www.ehow.com/how_4671165_avoid-ponzi-scheme.html