What is a pyramid scheme?

United States
June 22, 2008 9:48pm CST
Could someone explain what a pyramid scheme is in laymen terms? Or in a way that even a child can understand.
1 person likes this
3 responses
@applefreak (3133)
• Singapore
23 Jun 08
well, a pyramid scheme is exactly that. imagine a organisational structure that is shaped like a pyramid. only different is the money. for a normal company, the money is top down. for a pyramid scheme, the many below gives money to the few on top. in this kind of scheme, the first few who joins will be those on top. therefore they will earn big bucks. however, you will run out of people to slot below you. so those below usually end up losing money. hope you are not thinking of joining one. cheers :)
• United States
24 Jun 08
No I am not I just want to know what a pyramid scheme is. I read the definition but didn't understand it.
@gerald_lian (2194)
• Australia
23 Jun 08
I'm not really sure too because I havent' participated in any pyramid schemes, but I'll try my best to explain what I understand from it based on what I read on those sites. Basically, pyramid schemes are more or less like referral schemes. The more you refer, the more money you are going to generate. This scheme also relies on your referrals to refer others to this pyramid scheme, and it should continue on and on till it creates a long line of referrals. Now you as the first referrer (or even second, third etc.) will get a portion of money of those under you, even those referrals that your referrals get. Ok, I know this is getting a bit confusing, but basically, anyone that signs up for this pyramid scheme based on your efforts will earn you some money some way or other.
• United States
23 Jun 08
In a pyramid scheme the people who join pay money to people who joined before them. Say John starts a pyramid scheme. He gets 10 people to pay him $10 for something trivial. Then those 10 people each get people to pay them $10 dollars and so on and so forth. By the time you get to the bottom they run out of people to draw into it. So the people on the bottom lose their money while the people on the top profit. All they are doing is moving the money from the people on the bottom to the people on the top. In other words the only money the "business" is making is from new people :investing" so there is no real business model and the people on the bottom lose out. It is illegal in the USA.