Pyramid schemes have been around so long that people tend to accept them as legit. Technically, however, a pyramid scheme is considered illegal and fraudulent. To understand why this is, we first need to understand what a pyramid scheme is.

Many people feel that Amway or Avon is a pyramid scheme because the Avon representative tries to get other people to sign up under them. This in itself does not make something a pyramid scheme. A pyramid scheme is the process whereby one person gets another person to pay him money for the future prospect of getting money in return from somebody else who they in turn sign up. What makes this a pyramid scheme is that there is no real product being sold.

An example of one of the more recent and popular pyramid schemes is what is called the dinner party. These dinner parties are described as a charity group or gifting program who's sole purpose is to bring men and women together to find "financial support" and help them, what they call, "make a positive impact on the human race", but all it really is, is an old trick in a fancy new wrapper.

The way these dinner parties work are as follows:

Each party works as if it is a four course meal which consists of an appetizer, soup, main course and dessert. Eight "guests" put in an amount of money. Usually this is around $5,000 and is put in at the appetizer level. All of this money is then "gifted" to the person at the party who is currently at the dessert level. That person leaves the pyramid with $40,000 in cash. This pyramid then splits in two. Everyone who is in it moves up a notch. So all the people who were at the appetizer level then move up to the soup level. This creates eight new appetizer level positions. This process keeps repeating with the pyramids endlessly rotating. This creates what is called a perpetual cycle of charity giving.

What makes this different from Avon is that with Avon you are selling an actual product. The fact that the person makes money from your sales does not make it a pyramid scheme. This is no different from the regional sales manager of Sears getting money based on the individual sales of each Sears store.

Things to look out for when trying to determine if something is a pyramid scheme or not are the following:

1. You have to make some kind of a financial investment and recruit others to make any money back.

2. The scheme usually makes all and any attempts to hide the identities of the people involved.

3. The pyramid scheme is promoted as being approved by some organization or another and certificates of this approval are shown as proof.

4. There are a number of success stories either in print or told orally about ridiculous amounts of money made from the scheme.

By watching out for these signs you can avoid being taken in by one of these schemes. They are illegal and you can get into a lot of trouble if caught participating and promoting them.