KEY POINTS:
Thousands of New Zealanders get sucked in by scams and rip-offs every year. Instead of the pot of gold they're promised, these victims lose anything from a few hundred to a few hundred thousand dollars.
Those behind the scams and rip-offs rely on greed to hook the punters. One way or another they suggest you'll get rich by signing on the dotted line. But chances are the only person making that money is the scammer or rip-off artist.
The only difference between a ripoff and a scam is an intention to break the law. Usually a rip-off is simply a bad investment - as in the case of the elderly Katikati man who paid $560,000 to property company Blue Chip for a property worth half that. The person selling that investment knew the valuations shown to the man were inflated.
Likewise the Australian timeshare companies that entice potential buyers to buy weeks at double the cost on the open market are selling rip offs.
A scam is a dishonest attempt to trap you into parting with your money. One of the most common is the Ponzi scam where investors are offered 100 per cent or more per annum return on their investment.
It's really a pyramid where the person at the top may pay a few large dividends to encourage people to recruit others, but eventually runs off with the vast bulk of the capital invested.
Salesmen and scammers often cloak themselves as "investment advisers" - words that make the average person conjure up images of independence.
Yet their only motivation is to sell you something that is overpriced.
Alarm bells should start ringing with:
" Cold calls. If the investment was so great, savvy people and financial advisers would be lining up to buy it and there would be no need to offer it to complete strangers.
" Rates of return too good to be true.
" Being asked to pay money up front to get a larger sum in return.
" Being asked to send money overseas
" Being encouraged not to see independent lawyers, accountants and other professionals or asked to sign on the spot.
" Sellers that won't show you the fine print in writing.
" The investment is promoted as "risk free" or offers a fantastic return.
" Have you been asked for bank details?
" Do you need to hand over money to get the prize?
" Do you have comprehensive contact details?
Five scams to watch for:
" The prize that will cost you, where you're asked to pay a fee in advance for receiving a prize
" Ponzi schemes promise investors a fantastic return, but this is only paid for a few weeks from other people's capital until the entire scheme collapses.
" Phishing, where internet users are directed to a fake bank webpage and reveal their personal logins and passwords. The criminals then clear out their bank accounts.
" Get rich schemes which offer high wages for little skill and where you need to pay to get the work.
" Trade Me account hi-jacking where phishers get your login details and then sell non-existent goods on your account, taking the payment.
To find out more, visit Scamwatch.govt.nz and protect yourself.
* This article is from the 3-part supplement 'Money and You', available free with printed copies of the Herald this week.
