Crowdfunding – A Modern Day Investment Scam?

Crowdfunding has exploded onto the financial scene. Since the “qualified investor” requirement for funding small businesses was modified in 2013 we are all allowed (or pretend) to become venture capitalist or angel investors via crowdfunding.

crowdfunding names

It’s easy to find lists of over 100 sites that crowdfund everything from cutting edge new businesses to credit card refinancing.

I periodically end up on one or two of the crowdfunding sites. Checking out a friend’s GoFundMe campaign or funding the initial building of a revolutionary standing desk for grade schoolers are a couple I’ve visited recently. I also participate as a lender at Lending Club and by adding my two cents to the occasional political fundraiser I believe in.

But, I’m always careful to delay making any financial commitments until further research – both of the site and the offer – can be completed. That’s because crowdfunding is a scam artist’s newest way to separate a fool and his money. Even well established sites like Kickstarter, Indigogo and GoFundMe can unknowingly host scammers.

They even tell you so, as Kickstarter clearly states on its website:

“Kickstarter does not guarantee projects or investigate a creator’s ability to complete their project. On Kickstarter, backers (you!) ultimately decide the validity and worthiness of a project by whether they decide to fund it.”

So, why not join the party (as a lender or funder)? IF you use discretionary spending money and don’t think of it as a traditional investment; well, go for it. But use some common sense. crowdfunding piggybank

Apply these criteria when considering a crowdfunding opportunity:

You can’t expect the crowdfunding platforms to protect your “investment”

As we noted above, the platforms that make money from connecting start-up businesses, proposed books and software applications. They explicitly state they cannot be relied on to protect you from fraudulent offers or funders who fail to deliver on their promises.

They TRY, because their reputations are tarnished by fraud and failures but they come with NO guarantees.

In most cases, it’s a donation – NOT an investment.

Unless you are offered an ownership interest, don’t expect a return outside the “gift” in the listing. Peer-to-Peer lending is an exception. You act as a lender, not as a donor, and your losses (defaulted loans) offset earnings.

Also, almost none of the businesses looking for crowdfunding are legal non-profits so you won’t be getting a tax deduction either. But, if you believe in the cause or product, and your donation helps bring it to market, you can pat yourself on the back!

Many crowdfunding campaigns fail – and that doesn’t guarantee the donors will get their money back.

This policy varies by platform. Kickstarter refunds the money, Indigogo doesn’t. So, read the fine print for both the campaign and the platform before you give.

Vendors often over promise (and under deliver). A few are outright scams.

A guy gets an idea, his buddies tell him it’s great, and he decides to get crowdfunding and make it into a business – what could possibly go wrong??

You must do some due diligence (investigation). Click here for a good article from on how to look into a campaign to see if it’s A) legit and B) worth your money.

One way is to use social media to leverage other people’s knowledge via a platform like Reddit (here’s the Kickstarter subreddit link).

And, I’ll echo the the call to report scams. It’s a quick way to shut down scammers and clean up the crowdfunding space (and makes you a good web citizen). The list of scam reporting sites includes:

It sounds scary but I find spending a little time perusing (and donating a few dollars) inspiring. Seeing all the great ideas for products that can improve our lives gives me a little lift! Just don’t bet your lifesavings (or the rent money) on any one of them changing the world!

Live long and prosper, Leah the

Is Pet Insurance a Good Investment?

money questionsRecently, during a Q&A, an audience member asked this question. Now, I’m a bit of a skeptic about a lot of financial products – insurance being a big one – so my standard answer is probably not.

After-all, there’s a reason most of us run the other direction when we meet an insurance agent at a party! But, to be fair, I went and did some more research on insurance and pet insurance particularly, and here’s a more detailed answer.

Risk – of almost any kind – make most humans crazy.

The entire insurance industry, from asset protection (property and casualty), income (life and annuities) to cost containment (health, travel and pet) sucks over four hundred twenty one BILLION dollars (2.5% of GDP) from the US economy annually.

They’d like you to think they have your best interests at heart but many of the products they sell you have an obscenely high profit margin.

According to the Insurance Information Institute:

  • There were 6,086 insurance companies in 2013, including P/C (2,623 companies), life/annuities (904), health (835), fraternal (87), title (58), risk retention groups (256) and other companies (1,323), according to the National Association of Insurance Commissioners.
  • Insurance carriers and related activities accounted for $421.4 billion, or 2.5 percent of U.S. gross domestic product in 2013, according to the U.S. Bureau of Economic Analysis.
  • The U.S. insurance industry employed 2.5 million people in 2014, according to the U.S. Department of Labor. Of those, 1.5 million worked for insurance companies, including life, health and medical insurers (838,200 workers), P/C insurers (596,000 workers) and reinsurers (25,200 workers). The remaining 1 million people worked for insurance agencies, brokers and other insurance-related enterprises.

And, for the 2014 year the III reports:

“an underwriting profit of $12.3 billion (compared to $15.2 billion in 2013). The industry’s overall net income after taxes (profits) for the year tallied $55.5 billion (though down from $63.4 billion a year earlier)… Overall industry capacity rose to a record $674.7 billion as of December 31, 2014—up $21.3 billion, or 3.2 percent, from $653.4 billion as of year-end 2013.”  

But, today’s question is: Does pet health and accident insurance protect you from a real risk or is it another profit center for the insurance issuers?

Let’s start with some numbers –

Pet Number US House-

holds with Pets

Number of Pets in

US Households

Bird        6.9M        20.6M
Cat      45.3M         95.6M
Dog      56.7M         83.3M
Horse        2.8M           8.3M
Freshwater fish      14.3M       145.0M
Saltwater fish        1.8M         13.6M
Reptile        5.6M         11.5M
Small animal        6.9M         18.1M
*Source: Dog ill pet insurance
American Pet Products Association’s 2013-2014 National Pet Owners Survey.

If you’re (like me), one of the 56 million plus dog owning or 45 million plus cat owners in the United States, you probably know that an unexpected injury or illness of your furry friend can bust your budget.

Veterinarians now treat household animals for cancer, heart disease and other chronic illnesses plus fit them with artificial limbs and do complicated reconstructive surgeries on injuries that would have sent previous generations of pets off to the Rainbow Bridge.

Pets are big business in the USA – everything from food and clothing (yeap, my pit bull Indo needs a sweater in the winter) to special medications cost us about $55.5 BILLION in 2013*.

None-the-less, the American Veterinary Medical Association reports that in 2012 we spent an average of $227 per dog and only $90 per cat on routine vet bills and about $600 on dog surgeries, a bit under $400 for cats. So, it would seem that pet health and accident insurance is not something the average pet owner needs.

Two types of pet owners might be better off covering the risk:

  • Those who are unable to save an emergency fund to cover unexpected bills and
  • Those who are so emotionally attached to their furry family member that they’ll spend “whatever-it-takes” to prolong their lives.

Typical pet insurance runs $25 – 30 a month or $300 – 360 per year. Older or already ill pets will cost more. Over a typical 10 – 15 year lifetime that adds up to about $5,000.

Most policies don’t cover routine vet visits, just accidents and certain illnesses. If you do decide to purchase pet insurance, look carefully at the deductibles, exclusions (pre-existing conditions) and policy limits; be sure your vet accepts the insurance and compare prices. It’s likely you’ll still pay a portion of the additional expenses plus the insurance.

So, I suggest it’s better to save $5,000 as a pet fund unless you fit into one of two types above (and if you’re the non-saver, I suggest learning to save, instead!). Most pet owners will never spend that much in vet bills and in general, it’s unwise to purchase insurance to cover relatively small risks of any kind.

Final Answer: NO.

Skip the insurance and create a pet emergency savings account!

Live long and prosper, Leah the

Why You Need to Know How to “Talk Money”

Learn financial termsYeah, we keep harping on it – the need for everybody (especially women) to be financially literate.

NOT knowing the meaning of financial terms, and how the system works can, in the words of John Lanchester whose 2013 book is titled How to Speak Money, says in this 2014 New Yorker article, WILL hurt you financially.

“…when the finance industry says ‘credit’, what it really means is ‘debt’. If you don’t know that, you are likely to get into trouble.”

He goes on to give us really good, readable and interesting explanation of why in the rest of article.

The world is full of priesthoods. On the one hand, there are the calculations that the pros make in private; on the other, elaborate ritual and language, designed to bamboozle and mystify and intimidate.

Lewis book Big ShortThe latest episode (the 2008/09 crash) had even many so-called-experts fooled. If you haven’t read the Michael Lewis book The Big Short about the mortgage mess, the movie (staring Brad Pitt) is coming soon and I recommend it.

Reading this Money Talks article will give you a good basis for understanding Lewis’ book. As Lanchester explains:

During the recent credit crunch, many suspected that the terms for the products involved were deliberately obscure: it was hard to take in the fact that C.D.S.s were on the verge of bringing down the entire global financial system when you’d never even heard of them until about two minutes before.

BTW, reading Lewis’ latest book Flash Boys… Lewis book Flash Boyswill clue you into the current financial center scam!

While I certainly don’t recommend anyone spend time watching daily financial media like CNBC or Bloomberg TV, understanding how the financial sector functions is a critical part of building wealth in the 21st century.


Live long and prosper, Leah the

What’s MY Financial Type?

financial personality Had a chance to take a quick quiz offered by an exhibitor at the FinCon15 financial blogger conference.

I think mine came out pretty accurate!


They say:

As The Adventurer, you’re happiest when you’re learning and discovering something new. You’re always studying, innovating, and creating new things. You strive to solve old problems with new answers and are always open to new ideas. You approach life with a very “I’ll try anything once” mentality. Starting new projects is great, but you can have trouble following them through to completion. Some people may not follow your life approach, but you always take criticism lightly because you never stop believing in yourself.

Being The Adventurer means you typically keep a loose hold on your finances. You don’t really enjoy the details of financial planning, but that doesn’t mean you have terrible financial habits. You keep track of your income and spending, pay your bills on time, and hardly ever spend impulsively. After all, how would you fund all your ideas and adventures without money in the bank?

How about you?

Take the free Financial Personality Quiz (click here) and see if it can help you design a better financial life!

Live long and prosper, Leah the