More on Personal Debt and Multilevel Marketing Companies
Last year, I posted about John Oliver's segment on Last Week Tonight dissecting multilevel marketing (MLM) companies (aka pyramid schemes), and proposed a link between personal debt, bankruptcy, and MLM companies. Prominent MLM companies include Amway, Herbalife, the relatively new Rodan + Fields, and the even newer (to me, at least) LuLaRoe, through which women sell brightly-colored stretchy women's and kids' clothing. Indeed, posts about LuLaRoe--complete with mom and daughter wearing matching leggings--increasingly are overshadowing posts about Rodan + Fields in my Facebook feed. Since 2010, the MLM industry has grown 30%. LuLaRoe apparently adds 150 retailers a day (a figure unconfirmed by LuLaRoe). This all makes the MLM industry ripe for budget-crushing debt -- and for more news stories about that debts' effects on people's lives.
Quartz recently published such a piece, aptly titled: Multilevel-marketing companies like LuLaRoe are forcing people into debt and psychological crisis. Although the piece is far from a rigorous study of the financial pitfalls of joining a MLM, it is an interesting and entertaining read. It uses LuLaRoe to highlight the reality of MLMs: lots of self-empowerment language and lots of debt. According to an FTC study cited in the piece, 99% of people who join MLMs lose money.
Yet more and more people are joining these companies. Most of these people's businesses will fail. For some, that failure may come with debt that contributes to their filing bankruptcy.
Welcome to Utah, Utah County in particular. People are desperate to live the dream of entrepreneurship and burn themselves up trying. And it just keeps growing, like any good Ponzi scheme. In spite of Adobe and IM Flash, if this merry-go-round ever stopped, the local economy would crash. It's all just poor sods peddling quackery products that are protected from the FDA by Senator Hatch. And now we have a Scamway heir in the cabinet, gods help us.
Posted by: Knute Rife | August 08, 2017 at 05:59 PM
There was a great (and sad) New Yorker article recently that centered on Bill Ackman's crusade against Herbalife and discussed the legality and economics of MLMs: http://www.newyorker.com/magazine/2017/03/06/financiers-fight-over-the-american-dream.
I wonder if there's behavioral economics work out there that illuminates the dynamic that draws people into this particular type of decision?
I wonder also about the distributive aspects of this. Success in these endeavors seems highly likely to be linked to class (in particular, your friends' and family members' disposable incomes). So percentages of success in at-risk classes would be even worse than the overall percent.
Posted by: Chris B | August 08, 2017 at 09:11 PM