Opinion: Teach young people the difference between investing and gambling
This is the reason Americans ought to be afraid of the growing proliferation of prediction markets.
A recent survey by Betterment has found that 52% of Gen Z investors now say they are redirecting some investment money toward online sports wagers. Meanwhile, a survey by U.S. Bank found Gen Z and millennials are increasingly viewing homeownership as an unattainable goal.
As a result, “33% of Gen Z and 29% of millennials are either curious about or would consider using prediction markets as part of their wealth-building strategy.”
By contrast, 26% of Gen X and 15% of baby boomer respondents say the same thing.
It’s time to educate the young ‘uns. We have to get this right or entire generations could end up succumbing to the sophistry of prediction markets and ultimately missing out on real wealth.
Utah’s lawsuit
Luckily, Utah leaders understand this. Attorney General Derek Brown announced this week that the state is suing Kalshi, a leading prediction market, for continuing to do business in Utah despite a ruling by a federal judge in August that the state retains the right to enforce its own laws on gambling.
Kalshi and other prediction markets are governed by the federal Commodities Futures Trading Commission, which was set up to regulate the trading of commodities, defined as standard economic goods or raw materials — crude oil, wheat, gold and the like — which can be refined to produce a variety of products.
Prediction markets use a kind of crowdsourcing to predict events, such as the outcome of elections. They also offer bets on sports or other current events. Unlike with traditional gambling, participants buy contracts on the outcomes of these events at prices that reflect current odds. The markets profit from extracting a set fee from these contracts.
Participants may in turn sell or trade their contracts with other participants even before the event takes place. Ultimately, the contracts either pay off or lose.
Trump’s support for prediction markets
That such bets could be considered commodities is a stretch. But the fight to enforce state laws on gambling has been complicated by President Donald Trump’s staunch support for them. He wrote on Truth Social, “It is critically important that the CFTC’s exclusive authority over Prediction Markets is maintained, and that they will thrive.”
The venture capital firm owned by his son, Donald Trump Jr., is investing hundreds of millions of dollars in prediction markets.
Still, at least nine states have joined legal action to assert their own laws against these markets, including states that do and do not allow gambling.
Kalshi responded to the Utah lawsuit by saying, in part, “Kalshi answers to federal law, and no single state should have a veto over it.”
Some observers say the Supreme Court will eventually settle the matter.
Is investing like gambling?
Maybe, like me, you occasionally have encountered people who believe there is no real difference between investing in stocks and gambling. Each carries the risk of loss and each could be influenced by unforeseen factors. You win some, you lose some.
A wise money manager, however, understands that investing provides ownership in real companies that employ people and produce products. It is a positive-sum, long-term activity designed to make everyone involved — from the investor to the lowliest employee — wealthier over time.
On the other hand, gambling is a negative-sum activity. If you win, the house loses, and if the house wins (as most often happens), you lose. Either way, there is no final product.
Jonathan M. Craig, managing director at Schwab, wrote that the benefits of investing are more apparent over time. For instance, “… a 20-year investment in the S&P 500 has historically yielded a positive return 100% of the time,” he said. “You simply can’t say that about gambling.”
Craig notes one other important factor. It is that gambling can be addictive.
Statistics are hard to come by, but anecdotal evidence indicates that cases of compulsive behavior are on the rise. Addictionhelp.com estimates that 5.3% of North American gamblers were betting at levels that caused real harm in 2024.
“I’m not sure long-term investing has that same addictive power, and even if it did, history has shown that it likely would not be destructive,” Craig wrote.
In any case, he said, we owe it to kids and new investors to alert them to the differences between gambling and investing, and to make sure they handle money wisely.
At a time when debt threatens national security, that could make all the difference for the future of the economy and the nation.