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The surge in online sports betting is taking a toll on personal finances, especially those who are struggling financially.
This is the conclusion of a recent paper, “Gambling away from stability: The impact of sports betting on disadvantaged families.The authors found that sports betting has exploded since the Supreme Court struck down a federal law banning sports betting in 2018. More than US$120 billion in bets, with total bets reaching US$11 billion.
This injected huge amounts of money into the state coffers, but at a huge personal cost to gamblers and their families. Those who participate tend to invest less and have higher debt levels.
“Our findings suggest that sports betting leads not only to increased gambling activity but also to increased credit card balances, reduced available credit, reduced net investments, and increased lottery playing,” the authors concluded.
The authors note that these negative effects are particularly pronounced among “financially constrained households.” The term is not defined, but the implication is that this group typically has lower savings, lower levels of cash to pay expenses, higher levels of debt, and lower net worth.
Investment takes a hit
The authors used a quarterly survey sample of 230,171 households in states with legalized gambling. Approximately 7.7% of households engage in online sports betting, with households betting an average of $1,100 per year.
Not surprisingly, people who bet on sports have less money to invest, especially in the stock market. The authors found a significant decline in net deposits from traditional brokerage accounts. “Two to three years after legalization of gambling, net investment declined significantly relative to states where gambling was not yet legal,” the report said.
The authors estimate that legalization reduced bettors’ net investment by nearly 14%, with net investment reduced by $2.13 for every $1 spent on sports betting.
More debt, overdrawn bank accounts
But its impact is much wider.
“Increases in gambling and consumption have led to increased financial instability, manifested by reduced credit availability, increased credit card debt, and higher incidences of bank account overdrafts,” the authors said.
This is especially true for financially strapped families. Higher credit card debt suggests these households are not just moving money from one form of entertainment to another. (For example, moving money from lottery betting to sports betting.) Instead, they “become more indebted to fund addictive losing propositions.”
Likewise, lower-income households have suffered particularly hard; the bottom third of households by income have seen the largest increases in sports betting spending relative to income.
Bettors and non-betters
Characteristics of punters and non-betters differ significantly.
Both groups had similar incomes, but bettors showed higher risk behaviors. They are more than twice as likely as non-punters to have invested in cryptocurrencies or overdrawn their bank accounts. They are four times more likely than others to play online poker or buy lottery tickets.
These results are consistent with several previous studies. one Study in 2009 The conclusion is that low-income investors, who engage in more gambling-related activities, tend to bet excessively on state lotteries and overweight risky lottery stocks.
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The authors point out the dilemma faced by policymakers. By continuing to legalize and expand activities like sports betting, the vast majority of which lose money, the government is sending conflicting signals.
On the one hand, the government’s attitude is: they are adults and they have the right to spend whatever they want. We need money.
But the government has other priorities it is pushing for, including encouraging saving for retirement, which clearly conflicts with promoting gambling.
“As legalization of sports betting gains momentum, it could undermine government efforts to promote savings through tax incentives and financial literacy programs,” the authors concluded.
“Policymakers should consider how the temptation to gamble may divert funds from savings and investment accounts, especially for financially strapped households, which may impact household financial stability and long-term wealth accumulation.”
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