Passive Income Is Not a Myth, but It May Be a Scam

Angelo Franco

 

It turns out we’ve all been doing it wrong. Commuting, selling our labor for money, even getting an education – all overrated. There’s a better, easier, faster way to make money. It’s so easy, in fact, that many people can’t figure out how to do it because they don’t trust how easy it is. It requires so little work, that they can’t wrap their heads around how much money they can make doing next to nothing. It’s passive income and it’s everywhere right now.

 

The concept of passive income is not new (nor is it new to warn against it), but it’s a trend that’s become ubiquitous in social media and content platforms, easily garnering millions of views. Passive income is defined as unearned income—as opposed to income gained through labor—that is acquired with minimal to no effort, often through the use of automated processes. It popularized the idea that millionaires have seven streams of passive income that help maintain their wealth. But how passive is the processes to generate this kind of income, actually? And is it even a genuine source of income?

 

For the wealthy, it is. For everyone else, passive income is akin to a scam.

 

 

Investing is the most widespread method used to generate actual passive income. It can also generate significant profits. But it’s generally advised that, given the high risk of losing capital, money that can be invested should be money that someone can afford to lose in the first place: their spendable income or perhaps even a portion of their ongoing savings. Historically, there have been predatory schemes that purposefully advertise to draw the financially desperate and financially illiterate, with the promise of easy investment gains even though the investment process itself is sometimes deliberately complex (more so than investing in and of itself already is). And in reality, good investing requires active participation – keeping up with global affairs, remaining knowledgeable of economic and market trends, etc. In other words, this is work that needs to be done to expect a profitable and ongoing return on investment. Has anyone ever met an investor or a day trader who is chill? As it is, investing is not always viable for most, and this is why profitable investments to the tune of millions are usually reserved for those who are already wealthy.

 

Perhaps a more suitable name for this concept would be “leveraged” instead of passive income. Most, if not all, of the passive-income ideas that are floated around the internet require an up-front cost, oftentimes a very high one. Real estate, for example, is indeed considered one of the safest forms of investment that can yield a profit down the road. The idea to generate passive income from this is simply to buy a house and then just rent it -- and let that rent money take care of the mortgage with extra to put in your pocket. But the prospect of buying a house, of course, is out of reach for a lot of people. Plus, it ignores the costs of maintaining a house; and not just the bare minimum of keeping it livable for tenants, but to retain tenants as well.

 

Meanwhile, there are several other venues that are often cited as being “the best” passive-income ideas. And there are several reasons as to how each of those options are not, in fact, passive. Most troubling though is that none of these options offers sustainable, long-term income without someone being actively involved in their development and operations.

 

 

Content creation, for example, is often listed as an easy side hustle that can generate passive income. This includes things like starting a podcast, or a YouTube channel, or even a blog. That content creation is considered at all passive is misguided, for starters, and that it can easily generate income is misleading. Content creation, in this context, means continually producing and publishing content meant for mass consumption (as opposed to, say, the occasional viral TikTok). It needs to happen continuously because maintaining or driving up engagement is the only way that a content creator can actually generate any kind of income, thus negating anything “passive” content creation is supposed to be.

 

One statistic measured that nearly 90 percent of content in YouTube will never reach even 1,000 views. By contrast, only 0.77 percent of the entire content on YouTube reaches 100,000 views per video. In other words, this tiny microcosm of content, in a platform that sees over 122 million users every single day, could be making any actual income in any meaningful way from content creation. Not to mention that in addition to making content that is continuously engaging, even if someone has the technical skills needed to make that content available (knowing how to film, properly light and edit a video, SEO tagging, etc. - all measurable skills that require active participation to learn), the cost of proper equipment can easily add up quickly --which is why even content creation requires some sort of upfront investment, both of time and money.

 

Another oft-cited advice for passive income is through licensing fees. This, technically speaking, is good advice - except that there is nothing passive about it. The idea here is to generate a continuous flow of income through licensing fees by, for example, creating music that is then made commercially available. No clue who thought that creating music was in any way passive to begin with; but in order for something like music licensing to be lucrative, it requires extensive and arduous work. New music must be produced constantly, and licensed enough times to generate revenue. To make matters worse, the music licensing business is extremely competitive.

 

Along the same veins, several passive-income sites have recommended writing an eBook to collect royalty fees. This, like music licensing, isn’t necessarily bad advice – but it’s a lot of work for someone to write a book, assuming that they can write efficiently in the first place. But modern technology has provided an easy turnaround. Passive income “advisers” mention that someone can easily write an eBook using artificial intelligence, specifically using a platform like ChatGPT. That is - feed the AI whatever you need to teach it, then tell it to write an eBook for you. Upload it to Amazon or other à la carte eBook publishers and voilà - easy money, next to zero effort. The thing with this though -- the scary thing -- is that this could potentially work to an extent. This is sound advice both from the tech and the minimal-effort perspective. And it’s why it also highlights the messy part of all this, the underbelly of this “advice” for passive income: that nothing matters except the money.

 

 

To be clear: Money matters. A lot. But the context in which this content is being created leaves all the humanity out of the creation. Which can be smart, sure. But is there any value to it, then? Maybe it doesn’t matter in the end. And that’s why all this so-called advice about passive income seems hollow and, worse, weaponized. It speaks to our insecurities especially when we’re vulnerable: financially desperate and looking for ways out.

 

Because what it boils down to is that all this is in fact easy and if you don’t take advantage of it, you’re a fool. Someone who just doesn’t have what it takes to take such easy steps to get rich fast. It’s not that the math doesn’t add up -- you just don’t understand scale. It’s not that sometimes things don’t pan out -- it’s that you haven’t cracked the formula and gave up too early. It’s not that it’s actually easy -- you’re just foolish for having thought that in the first place.

 

Passive-income influencers frame any other type of success as a moral failure. For them, having a 9-5 job is the real scam – being exploited in this capitalist world when there’s this supposed easy money to make right there for the taking. And gleams of truth of that renunciation of capitalism aside, this perspective both ignores the pitfalls of the active work that still needs to be done to generate “passive” income while condemning more common, and still honorable, ways of trading time for money.

 

This messaging, it turns out, is important. In it, there’s more than a little reminder of the way that, for example, self-help content markets itself, as well as other ventures that are risky at best and predatory at worst:  MLMs, payday loans, rent-to-own, etc. Like these, it’s essential for passive-income content and messaging to speak to our human desires of getting money quick, of owning stuff (or the perception of it), or of not having to answer to anyone but ourselves.

 

 

In theory, it would stand to reason that generating passive income should be a one-man effort: rolling up your sleeves and getting down to business (but without putting in the elbow grease, because this is supposed to be passive after all). Taking risks upon yourself and likewise reaping the benefits on your own.

 

But passive income advice content is frequently marketed with byproducts to buy. In other words, there’s always a catch in order to move forward; a first step to take that involves some kind of purchase. It may be an online course that teaches you more about passive income; or an e-book that outlines the ways to start a YouTube channel; or a kit about the best equipment to buy to start a podcast. Many of the sites linked throughout this article, in fact, do just that. Never mind that if these coaches indeed make a living with their passive income streams, then they would not have a need to be selling a product on the internet; they would probably say that it’s just their altruistic nature.

 

 In this sense, it’s really not any different from products and services that promise an unlikely outcome when all they are is smoke and mirrors and snake oil. Consumer protection agencies warn against this kind of messaging: if it’s too good to be true, it probably is. If they overpromise, avoid at all costs. And it all does indeed turn into a scheme when it stops being meaningless, if oftentimes harmful, advice and it becomes a predatory industry itself. This is the way in which passive income is a scam.  

 

Author Bio:

Angelo Franco is Highbrow Magazine’s chief features writer.

 

For Highbrow Magazine

 

Image Sources:

--Blue Diamond Gallery (Creative Commons)

--Investment Zen (Flickr, Creative Commons)

--Ivan Radic (Flickr, Creative Commons)

--Marco Verch Professional Photos (Flickr, Creative Commons)

--Mohamed Mahmoud Hassan (publicdomainpictures.net)

 

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