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11 Nov 2019

Financial Institutions

Ponzi scheme...and the need to enhance financial literacy to prevent scams (Business Brief No.3831)


           When looking back at Thailand's recent financial history, the search-for-yield behavior has always occurred regardless of how low or high the interest rate was at that given period. At any rate, during the slowing economy, which often comes with a low interest rate environment, people are more likely to adopt higher search-for-yield behavior than usual. One of the risky investment options that can adversely affect household finances is the “Ponzi" scheme. KResearch carried out a survey to gauge opinions from respondents in the Bangkok Metropolitan Region and provinces early November 2019 and found that a high proportion, 18.9 percent of total respondents, said that they are also interested in getting higher yields from other investment alternatives rather than investment in financial or capital markets or savings with financial institutions. Close attention should be paid to this group of investors because they may fall victim to a financial scam, lured by high return promises by unscrupulous brokers, regardless of whether they have made the investment decision voluntarily, or they thought they knew better or not.

     ​        The vulnerable group of investors can be categorized into two sub-groups based on their different characteristics.  The first group of investors is those who are interested in hunting for high investment returns from the informal sector even though they have never heard of or gained thorough knowledge and understanding about it. The second group of investors is those who have heard about the investment in the informal sector, and they were certain that they would reap profits from this type of investment. Both groups have one thing in common, they have limited or no knowledge about pyramid schemes. Therefore, they are vulnerable to being cheated by an investment fraud.

             ​Although the Thai government, especially the Bank of Thailand, has given warnings and laid down guidelines for preventing and solving the issue of investment scams in the past two years, KResearch nonetheless views that it is necessary to further educate the general public about the issue as reflected by the findings of the survey. The respondents said they want to see additional measures; for example, there were respondents who said that the authorities should enhance people's financial literacy and develop an online application for people to check information on pyramid schemes.​

Financial Institutions