“Paluwagan” is one of those Filipino terms that has no direct English translation.
It’s quite hard to explain, but here goes. Basically, “paluwagan” is a money pool where participants contribute a portion of their salaries to during payday.
The Mechanics of “Paluwagan”
To illustrate, say, we have four people working in the same office. Let’s call them Miko, Marck, Jennifer, and Jay. They’re participating in a”paluwagan” scheme where they each contribute PHP1,000 to the communal money pool every payday, and then take turns bringing the pot home.
So, for instance, during the first payday, their contributions add up to PHP4,000, which Jay takes home if they agreed to go by alphabetical order. On the next payday, Jennifer is entitled to receive the communal Php4,000, followed by Marck on the next payday, and then, finally, Miko. Then, the group decides if they’ll stop there or if they’ll simply continue with another cycle.
How “Paluwagan” Is Being Revived As an Internet Scam
Generally, “paluwagan” is only done among close-knit circles so that all participants are somewhat assured that everyone will remit their share when the time comes. Early attrition is one of the foremost risks, and those who are scheduled to receive their shares later down the timeline get short changed when those who already got theirs suddenly decide not to participate anymore.
Now, it wouldn’t be too much trouble to track down the said delinquent participants to make them keep their end of the bargain if you know who they are. But imagine if you joined a big “paluwagan” circle where you don’t know the administrators?
Recently, the Philippine Securities and Exchange Commission (SEC) warned the public against investing in online “paluwagan” circles, which lure unsuspecting investors with promising returns on their payout schedules. Participants were offered exorbitant interest rates on their contributions, ranging from 10 percent to up to 757 (!) percent.
It all sounds well and good, and some victims actually reported receiving dividends for a few months. And then, just as suddenly, the ones in charge of distributing the payouts disappear, leaving the investors holding an empty bag.
Because everything was conducted online without any official receipts or documents, the aggrieved victims often find it difficult to resort to legal remedies.
Unsurprisingly, many of the victims are OFW’s and their relatives. One OFW housewife reportedly invested half a million pesos of her husband’s hard-earned money in a “paluwagan” circle on Facebook. She trustingly deposited it to an administrator’s account without even meeting him in person, so he disappeared shortly after the deposit was cleared. This led to the victim being unable to pay off her family’s utility bills and her children’s tuition fees, as well as the eventual dissolution of her marriage.
Why Do People Still Fall For This?
When you consider how dubious the whole set-up is (come on, who deposits a big amount of money into a complete stranger’s account???), it’s hard to believe how the perpetrators were able to defraud a lot of people.
Here’s the thing: certain mindsets in the Philippines paved the way for these things. For starters, financial literacy is almost non-existent among many citizens because money is still a taboo topic for conversation.
Secondly, many Filipinos simply don’t like to put their money in banks because of the rather high required maintaining balances, so they think (rather erroneously) that putting their money in a “paluwagan” circle is a better option, and in some twisted way, there’s truth to that. Once you hand over your contribution to the pot, you can’t spend it, and provided that things go right, you’ll get it back when it’s your turn to collect. Also, the rate of return in successful “paluwagan” circles trumps the interest rate that any legitimate bank can offer.
The only trouble is, the risk of losing your entire investment is all too real because there aren’t any regulatory bodies overseeing these arrangements and the lack of legally binding documents makes it difficult to enforce what was originally agreed upon.
Try telling that to a person with little to no financial literacy and/or can’t see past the perceived benefits, though.
A Better Alternative
I hate to break it to you, but save for nabbing a government seat or becoming a drug lord (or both, we’re in the Philippines, after all), there aren’t any get-rich-quick schemes that actually work.
Mutual funds, stocks, bonds, and other financial products won’t make you an overnight millionaire, but they are legal, legitimate, and won’t make you lose sleep at night. Again, true, lasting wealth takes time to build, and requires hard work, financial discipline, and continuous learning, especially when it comes to various investment instruments.
Sure, it sounds like extra work, but isn’t a financially stable future worth all that anyway?
Right, let’s all hang on to our savings until we find much better investment vehicles to put them in then.