If you are part of a Charedi community, you have likely heard multiple versions of this story. This time it’s a promising real estate deal in vacation houses in Wyoming; that time some app that will revolutionize the world of foreign currency; another time it could be an investment fund promising to find the very best entrepreneurs. These grandiose promises are usually made by people well-known to the community, and the investors usually end up in a creek.
Why does this happen? Charedim are probably no more gullible than other people. I have met many broken-hearted investors before. They are usually wise and intelligent. They would never act so recklessly in any other area of life. Observe, for instance, how Charedi individuals behave when it comes to Shidduchim. Over years of experience, the community has established thorough research practices. References are checked, candidates vetted, and so on. At the end of the process, every relevant detail (and many irrelevant ones) in the history of a Shidduch candidate and his/her family is known to the parties. But somehow this commitment to due diligence takes our leave when it comes to money. People are trusting when they should be skeptical, careless when they should be cautious.
In this article, I will try to explain why many can fall easy prey to these sorts of swindles and what can be done to cope with the problem.
A Cooker Pressure Called Marriage
Married Chareidim are at particular risk for bad investments. Young Charedi men know very well that getting married in the Charedi community requires money, and a lot of it. True, there are significant differences between various subgroups, but there are hardly any parents who do not have to raise at least 100,000 shekels (at least 200,000 is perhaps more accurate) during the engagement period – and that sum can easily reach a full million.
Between the age of forty and sixty, he will have to pay back everything invested in him with compound interest: depending on the standards of his community, he will have to raise over a million shekel – and sometimes several million – to marry off his kids
The engaged young man witnesses this effort by parents to raise the needed funds. Standing under the chuppah, he understands that he has a problem: the clock is ticking. In eighteen to twenty years, he is going to be in the same position. Between the age of forty and sixty, he will have to pay back everything invested in him with compound interest: depending on the standards of his community, he will have to raise over a million shekel – and sometimes several million – to marry off his kids.
This impression is particularly burdensome upon young couples who witnessed the tough consequences of their parents having to raise such enormous sums. Many of them witnessed friction between parents, physical and emotional breakdowns, and all sorts of other extreme situations. They don’t believe they can stop the madness – changing society is beyond them, and it has been spoken about for too long to believe that things will actually change – and they understand that it will catch up to them, too.
Thus, a Charedi couple starts out living together with the knowledge that they need to enlist at least 150,000 NIS multiplied by an average of seven children. If that couple is of the Litvish ilk and was blessed with girls, that number becomes far higher. To this, they must add the routine costs of living. According to current data within the Charedi community, we can estimate that this comes to some 2,500 NIS monthly per family member. When a young Kollel student lives under the shadow of such numerical calculations, he is liable to take leave of his judgment.
The young couple understands the financial pressure, and they’ll do almost anything to relieve it. They dream of the one miracle solution to their problem, happy to risk their own money, and worse, other people’s money, too. They end up being conned and conning others themselves. The fear of financial collapse strains psyches, marriages, and religious lives. If we don’t understand this reality, no prevention plan or tips will help.
Even couples whose economic situation is better than average are not immune to such hardships. In fact, couples who were given an apartment as part of the marriage at still greater risk. They received over a million without having to make any investment, work-related or otherwise, and they are now convinced they need to accrue even higher sums with the same ease, thus continuing the family tradition and supplying their own children with apartments.
If this situation seems untenable to you, dear reader, then you are not wrong. However, at the present time, this is an accurate description for many Charedi families.
This is how the swindles begin.
A couple will become desperate to raise money for a Shidduch. They read the Charedi newspapers and an advertisement about some high-reward investment catches their eye, leading to a meeting with an entrepreneur who offers them a partnership in his venture.
Such entrepreneurs almost always belong to the potential investor’s close social circles. It could be a friend from Shul, someone from the Kollel (or even the head of the Kollel), and at the very least somebody belonging to the same Charedi community: somebody you can trust. The entrepreneur will also be living under the same social pressure so that he and the investor understand each other. When the entrepreneur approaches the anxiety-filled Kollel student and invites him to invest, the latter thinks Eliyahu HaNavi himself is speaking to him. He has become mired in despair due to his impossible financial predicament, and Providence has provided him with a direct answer!
The same “angel from heaven” sent to his rescue has an answer for every question. The Kollel student claims that he lacks money for investment? The entrepreneur will calm him down and explain that there’s nothing to worry about – he will assist him in raising the funding. For the first time in his life, the Kollel student learns about the concept of financing – and in the worst possible context. The Kollel student’s wife has her reservations about mortgaging a home and investing such large sums of money, but the entrepreneur pays a home visit to convince her and assist the husband in refuting her objections.
For whatever reason, the fact that this wonderful investment opportunity has not attracted conventional and seasoned investors, and needs to be marketed in the Charedi media to attract unwitting first-time Charedi investors, goes entirely unnoticed.
And so it all starts…
Rules of Thumb and Red Flags
Are there rules for identifying bad investments? Common swindles in our camp do come in all shapes and sizes. If we thought the real estate deal abroad is a risky bet, it turned out that there were those who invested in real estate in Israel and were still ripped off to the tune of hundreds of thousands of shekels. Still, professional experience proves that there are ways to verify, at the very least on some level, whether an investment is reliable and worthwhile.
For instance, the more the intermediaries between you and the other side, the more reason to fear that someone has you over a barrel. As much as possible, it is important to know the other party –meaning, the actual person in charge of the initiative – on a personal level. In addition, it is always worthwhile to bring someone else to any meeting involving investment. Another piece of advice is to record the conversation – for instance, make a recording for your wife who couldn’t make the meeting. If the venture is risky, people will not be willing to take responsibility: they will almost always refuse to be recorded, even by their best friends. This is an important red flag.
Another piece of advice is to record the conversation – for instance, make a recording for your wife who couldn’t make the meeting. If the venture is risky, people will not be willing to take responsibility: they will almost always refuse to be recorded, even by their best friends. This is an important red flag
Oral agreements are also not worth the paper they’re not printed on. All terms must be written down, otherwise, it remains meaningless. One lawyer for two sides? It may be efficient, but it works against you. You need to have a lawyer who works for you and your spouse’s interests.
In addition to all these basic commonsense rules, it is important that an investor check if the proposed investment works for them personally. Even good investments are not good for everyone. For instance, investing in real estate abroad is not always a bad idea – but it’s a very bad idea if you don’t speak the local language and have no idea what was said at the investment meeting for which you made an international trip. You can equip yourself with a translator and thus bypass this difficulty, but you should under no circumstances enter a deal for which have no real way of knowing what you were told regarding the investment.
Sometimes even a distant real estate deal in Israel is a mistake. My regular advice is this: If the apartment you wish to buy is somewhere you would think twice about traveling to when there’s a problem that needs handling, the investment is not for you. In addition, how good are you at cutting ties without sentimentality? If you’re not very good, a tenant who stops paying rent to you will cause you serious losses.
The “personal match” test also serves me well when I encounter someone who is excited at joining some networking marketing (pyramid) plan. Are you willing to openly be a salesman, I ask the new recruit – to which the answer is usually negative. Well, those who are unfit to be salesmen cannot succeed in networked marketing. The “success stories” you’ll be sold inevitably involve good salesmen, some of which even worked in the field in the past. The obvious conclusion is that one cannot learn from such examples if you yourself are of a different disposition.
Can We Stop the Fall?
The bad news? When a couple is taken in by the promises of some investment, even common-sense advice just won’t help. For years I failed to grasp this basic insight. I would talk to people about the dos and don’ts of investments of the type mentioned above, but my guidance did not prevent the fall. Over time, I discovered that my advice was irrelevant. Investment rules do not help those who are engaged in far more urgent matters: making money, and fast! If we agree with him on this point, there’s a chance he will listen. If we do not, our words will fall on deaf ears.
Under circumstances all too common to our society, the basic desire of getting rich quickly does not warrant direct opposition. The correct thing to do is sit down with the couple and agree with them: yes, you need money. But how much, exactly? Let’s spell it out
Under circumstances all too common to our society, the basic desire of getting rich quickly does not warrant direct opposition. The correct thing to do is sit down with the couple and agree with them: yes, you need money. But how much, exactly? Let’s spell it out. We sit and calculate, for instance, that they need five million shekels to marry off their kids. They also need a certain amount for routine expenses. We add up all the sums, divide them by the number of years left until their kids grow up, and reach a number, say, of 40,000 shekels a month in addition to their present income.
Now we’ve divided a very scary number into monthly, manageable portions, we can offer the following advice: do not enter any deal that will not yield the required sum. The main question to ask of the entrepreneur is therefore whether the investment will yield this monthly amount. Often, he will start stuttering and stammering, noting that during the first years the yield cannot be so high, that the couple itself needs to raise significant funding, and so on. When the simple math is articulated in black and white and the entrepreneur is forced to admit he cannot promise to supply the goods, people start to wake up.
Of course, after being disappointed by many a fly-by-night operation, our interlocutor may despair. He cannot find an investment that provides the dividends he needs. At this point, he might start dealing with the situation by employing more realistic tools. He will try to increase his income in conventional ways, save on expenses, and even start to understand that this circle cannot be squared. Even if “everybody says” that half a million is absolutely necessary for every child, the entire “being the same as everybody” might be simply irrelevant for him.
Teaching the Value of Money From a Young Age
This approach works very well with couples on the verge of falling for dubious deals. However, there is also a way to immunize young people against such dangers in advance: by teaching them the value of money from a young age.
If a child asks for a new bicycle, for instance, parents should think about it, calculate when they can afford the expense, and then explain to the child that it’s important to them to give him what he wants, and they will therefore work hard for the next two or three months to obtain the money for a bicycle. Incidentally, many children will give up on the bike at this stage. All they want to know is that they are important to their parents, which they now know. But even if the child is insistent on getting a bike, he will benefit – he will learn to delay gratification and absorb the connection between work and money.
If a child asks for a new bicycle, for instance, parents should think about it, calculate when they can afford the expense, and then explain to the child that it’s important to them to give him what he wants, and they will therefore work hard for the next two or three months to obtain the money for a bicycle
Similarly, I am convinced that wedding expenses also need to be transparent for the young couple. I was privileged recently to marry off my second daughter. I have an Excel spreadsheet documenting all the money spent on the wedding. The children see how much money is spent on them and are very appreciative. A child raised in this way will not only ask for things with humility but will also not insist on that which is not critical. We need to send our children the right message.
The heart-rending stories about people in our community who lost what little they have in trying to secure imaginary windfalls are not some inexplicable fate. Such tragedies grow on the ground we all cultivate – in an education system that does not teach the value of money and in a society enveloped by dramatic social pressure that ignores reality. The good news is that each one of us can start the change at home, with concepts handed down at a young age bearing fruit many years later. The future of our children’s homes depends on it.