Saturday, June 7, 2008

Financial Preparedness: Avoiding Fraudulent and Risky Schemes

In February 2008, the First Presidency issued a letter to general and local leaders in the United States and Canada with a message to be prudent in managing financial affairs. They offered concern about individuals who may use relationships of trust to promote risky schemes and shared sound financial principles to manage risk: “First, avoid unnecessary debt, especially consumer debt; second, before investing, seek advice from a qualified and licensed financial advisor; and third, be wise.” Here are some of the common warning signs of fraud.

Sense of Urgency
An opportunity that requires an immediate response is typically a clear sign of fraud. Someone trying to sell an opportunity may try to persuade by saying it’s the chance of a lifetime or only a certain number can participate, but the need for a quick decision means there is little or no time to think about the commitment or to check the background of the investment. Fraudsters will try to create a sense of urgency to encourage investors to jump in before various concerns or anxieties can settle. It is important to take the time to carefully consider each aspect of the decision. A quality investment opportunity will be around long enough to allow the time needed to fully contemplate the options.

Guaranteed Profit, Little Risk
Who could turn down an investment opportunity with virtually no risk and guaranteed profit? It almost seems too good to be true, and according to Brian Sudweeks, an associate professor of finance at Brigham Young University, it probably is. “No one can promise a consistently high specific rate of return, and there are no ‘get rich quick’ schemes that work on a consistent basis,” Brother Sudweeks said. “Guaranteed high returns are never guaranteed or high.” But promoters will often propose such ideas, appealing to the desire to see a fast return and immediate profit. Brother Sudweeks encourages potential investors to apply two important principles to any investment decision. “First, know what you invest in and whom you invest with,” he said. “Second, invest only with high-quality individuals and institutions.” Often a scheme continues to operate simply because investors don’t know what they are investing in, only that they see a return. As new investors contribute money, those funds go to pay previous investors, creating a never-ending shuffling of money that eventually collapses.

Well-Known Referrals
Most individuals are more likely to participate in an investment opportunity if they know their sister, home teacher, neighbor, or co-worker is also participating. Promoters will often use these examples to appeal to and build some level of trust. While it may or may not be true that these friends and acquaintances are involved, investors cannot responsibly respond to this elevated form of peer pressure. “A lot of people don’t understand the proper principles of investments and don’t want to take the time to research and investigate something,” Brother Romney said. “Instead they rely on the fact that someone else has investigated it. When they hear the names of people they know, they automatically assume the research has been done.”
With a countless number of fraud schemes come just as many types of fraudsters. While terms such as swindler or scammer may bring a stereotypical image to mind, there are no set characteristics of someone promoting fraudulent investments. In fact, they may be typical acquaintances from work or church, family members, or close friends, and they may not even know the depth of what they are involved in. “Ask yourself if you are interested solely because you know someone else involved,” Brother Romney said. “If this is the case, perhaps take a step back and really look into the background of the investment. No matter how trustworthy the source seems, potential investors should never make a decision based solely on the advice of others.”

Avoiding Fraud
As investment fraud becomes increasingly common, Church leaders have offered counsel to avoid unwise investments and stay out of debt.
“We again urge our people to avoid unnecessary debt, to be modest in the financial obligations which they undertake, to set aside some cash against an emergency,” said President Gordon B. Hinckley (1910–2008) in a general conference address in 2003. “We warn our people against ‘get rich’ schemes and other entanglements which are nearly always designed to trap the gullible” (“The Condition of the Church,” Liahona, May 2003, 4).

Resources exploring the basics of family finances are available on the Church’s Web site, The site features an online financial course, references to talks from Church leaders, lesson materials, and access to additional resource material.

Source: Adapted from an article posted on

No comments:

Preparedness Quotes

"When faced with the choice to buy, consume, or engage in worldly things and activities, we all need to learn to say to one another, 'We can’t afford it, even though we want it!' or 'We can afford it, but we don’t need it—and we really don’t even want it!'" - Elder Robert D. Hales, April 2009 General Conference

"Many areas of the world have experienced difficult economic times. Businesses have failed, jobs have been lost, and investments have been jeopardized. We must make certain that those for whom we share responsibility do not go hungry or unclothed or unsheltered. When the priesthood of this Church works together as one in meeting these vexing conditions, near miracles take place.

"We urge all Latter-day Saints to be prudent in their planning, to be conservative in their living, and to avoid excessive or unnecessary debt."
- President Thomas S. Monson, October 2008 Priesthood Session, General Conference

"Avoid the philosophy that yesterday's luxuries have become today's necessities. They aren't necessities until we make them so. Many enter into long-term debt only to find that changes occur; people become ill or incapacitated, companies fail or downsize, jobs are lost, natural disasters befall us. For many reasons, payments on large amounts of debt can no longer be made. Our debt becomes as a Damocles sword hanging over our heads and threatening to destroy us."
- President Thomas S. Monson, April 2006 General Conference

“We have built grain storage and storehouses and stocked them with the necessities of life in the event of a disaster. But the real storehouse is the family storeroom. In words of revelation the Lord has said, ‘Organize yourselves; prepare every needful thing’ (D&C 109:8.)”
President Gordon B. Hinckley

"We need to make both temporal and spiritual preparation for the events prophesied at the time of the Second Coming. And the preparation most likely to be neglected is the one less visible and more difficult--the spiritual. A 72-hour kit of temporal supplies may prove valuable for earthly challenges, but, as the foolish virgins learned to their sorrow, a 24-hour kit of spiritual preparation is of greater and more enduring value.

"We are living in the prophesied time 'when peace shall be taken from the earth' (D&C 1:35,) when 'all things shall be in commotion' and 'men's hearts shall fail them' (D&C 88:91.) There are many temporal causes of commotion, including wars and natural disasters, but an even greater cause of current 'commotion' is spiritual." Elder Dallin H. Oaks

“Every father and mother are the family’s store keepers. They should store whatever their family would like to have in case of an emergency…(and) God will sustain us through our trials.” President James E. Faust

“We live in a most exciting and challenging period in human history. As technology sweeps through every facet of our lives, changes are occurring so rapidly that it can be difficult for us to keep our lives in balance. To maintain some semblance of stability in our lives, it is essential that we plan for our future. I believe it is time, and perhaps with some urgency, to review the counsel we have received in dealing with our personal and family preparedness. We want to be found with oil in our lamps sufficient to endure to the end.”- Elder L. Tom Perry, Ensign, Nov. 1995

"Many more people could ride out the storm-tossed waves in their economic lives if they had their year's supply of food. . . and were debt-free. Today we find that many have followed this counsel in reverse: they have at least a year's supply of debt and are food free." President Thomas S. Monson

"Just as it is important to prepare ourselves spiritually, we must also prepare ourselves for our temporal needs. … We have been instructed for years to follow at least four requirements in preparing for that which is to come.

“First, gain an adequate education. Learn a trade or a profession to enable you to obtain steady employment that will provide remuneration sufficient to care for yourself and your family. …

“Second, live strictly within your income and save something for a rainy day. Incorporate in your lives the discipline of budgeting that which the Lord has blessed you with. As regularly as you pay your tithing, set aside an amount needed for future family requirements. …

“Third, avoid excessive debt. Necessary debt should be incurred only after careful, thoughtful prayer and after obtaining the best possible advice. We need the discipline to stay well within our ability to pay. …

“Fourth, acquire and store a reserve of food and supplies that will sustain life [if local laws permit such storage]. Obtain clothing and build a savings account on a sensible, well-planned basis that can serve well in times of emergency. As long as I can remember, we have been taught to prepare for the future and to obtain a year’s supply of necessities. I would guess that the years of plenty have almost universally caused us to set aside this counsel. I believe the time to disregard this counsel is over. With events in the world today, it must be considered with all seriousness.” - Elder L. Tom Perry, October 1995 General Conference

“Maintain a year's supply. The Lord has urged that his people save for the rainy days, prepare for the difficult times, and put away for emergencies, a year's supply or more of bare necessities so that when comes the flood, the earthquake, the famine, the hurricane, the storms of life, our families can be sustained through the dark days. How many of us have complied with this? We strive with the Lord, finding many excuses: We do not have room for storage. The food spoils. We do not have the funds to do it. We do not like these common foods. It is not needed -- there will always be someone to help in trouble. The government will come to the rescue. And some intend to obey but procrastinate.” - The Teachings of Spencer W. Kimball, p.375

“All too often a family's spending is governed more by their yearning than by their earning. They somehow believe that their life will be better if they surround themselves with an abundance of things. All too often all they are left with is avoidable anxiety and distress” - Elder Joseph B. Wirthlin

"Be prepared in all things against the day when tribulations and desolations are sent forth upon the wicked." D&C 29:8

"Too often we bask in our comfortable complacency and rationalize that the ravages of war, economic disaster, famine, and earthquake cannot happen here. Those who believe this are either not aquainted with the revelations of the Lord, or they do not believe them." President Ezra Taft Benson

"Fear not little flock; do good; let earth and hell combine against you, for if ye are built upon my rock, they cannot prevail. . .Look unto me in every thought; doubt not, fear not." D&C 6:34, 36

"I believe that the Ten Virgins represent the people of the Church of Jesus Christ. . . They (five foolish) had the saving, exalting gospel, but it had not been made the center of their lives. They knew the way but gave only a small measure of loyalty and devotion.

"The foolish asked the others to share their oil, but spiritual preparedness cannot be shared in an instant. . . . This was not selfishness or unkindness. The kind of oil that is needed to illuminate the way and light up the darkness is not shareable. . . . In our lives the oil of preparedness is accumulated drop by drop in righteous living." - President Spencer W. Kimball

“We encourage families to have on hand this year’s supply; we say it over and over and over and repeat over and over the scripture of the Lord where he says, “Why call ye me, Lord, Lord and do not the things which I say?” How empty it is as they put their spirituality, so-called, into action and call him by his important names, but fail to do the things which he says." - President Spencer W. Kimball"/>


All data and information provided on this site is for informational purposes only. I make no representations as to accuracy, completeness, currentness, suitability, or validity of any information on this site & will not be liable for any errors, omissions, or delays in this information or any losses, injuries, or damages arising from its display or use. All information is provided on an as-is basis.