When is it exactly a good and practice decision to join a “paluwagan” group?
This is one of the questions posted recently on an online community on saving money. A few people could encounter this dilemma once their officemates or neighbors decide to invite them to an informal savings group.
But first, how exactly does it work?Paluwagan is a traditional Filipino savings scheme that acts like a credit association and a rotating savings fund.
- Coworkers, for example, can agree to contribute a fix amount of money at regular intervals (weekly or monthly).
- For each cycle, one member receives the entire pooled sum, and the rotation continues until every member has received a payout.
- Needless to say, this practice is mostly trust-based, since there are no written contracts and verbal commitments among members usually suffice. There is little to no regulation and legal protections as well.
- It also instills the discipline of setting aside a certain amount as a form of commitment instead of spending it on an impulse buy.
So the question is, should you join one?
Before you do, here are major red flags you ought to watch out for, as pointed out on the forum.
1. When not all of the members are deeply trusted to have the capability or capacity to pay regularly.
Since paluwagan is not regulated, a member can just simply stop contributing or an organizer can disappear with the pooled fund with little legal recourse.
2. When you can DIY. Remember that paluwagan does not earn anybody any interest or profit.
If you trust in the process to keep you growing your contributions, do it.
But if you think you have discipline to set aside money yourself, you’re better off putting it in a high-yield savings account like a digital bank or wallet, or even a state-run fund like PAG-IBIG MP2. That way, you’ll earn more on top of what you put in.
3. Promises that ‘wow’ you. Again, this rotating savings scheme does not earn you commissions or interests. So if the organizer invites you with guarantees of quick, high-returns especially for a short period and when you don’t know every single contributor, say no.
These can actually be pyramid schemes disguising as paluwagans.
4. The group is too big. It will get harder to track who pays what and when the bigger the group is, raising the risk even further when there are several organizers who may be disorganized or do not keep a faithful record of accounts.
For added peace of mind, vet the organize and members and ask for written rules and a payout schedule that everyone abides by. It is better that you know and trust everyone in it.
That’s also another way of saying, keep out of online paluwagans as well.
5. When something feels off. Sometimes it’s your gut that tells you to stay away from the system.
