How investing is getting riskier (Two Indicators)

Margin borrowing and sports gambling “investments” are both on the rise! Today on the show, two stories from Planet Money’s daily podcast The Indicator about the ways investing is changing, and getting riskier. According to one study, more than half https://www.prnewswire.com/news-releases/betterments-2026-retail-investor-survey-reveals-a-new-generation-of-investors-is-blurring-the-lines-between-information-advice-and-entertainment-302848376.html of Gen Zers are using investment dollars for sports gambling. On average, this is not a smart strategy for the long term. It might be that sports betting today is like day trading was for a previous generation of young investors: something a lot of young people, typically men, do, lose money at for a while, then quit. We review the early research on this trend and meet a state legislator proposing ways to stem problem gambling. More, generally younger people are also investing with borrowed money. Trading on margin is at an all time high of over $1.5 trillion. In the past, high levels of margin investing have led to crashes. We hear those stories and find out what the Fed might do to reign in the risk. Related Indicator episodes — How AI might mess with financial markets http://lnk.to/zlkvbt — Prediction markets are threatening national security. Who's gonna fix it? https://lnk.to/pRWjp2WE Connect with Planet Money & The Indicator — Sign up for The Indicator’s weekly link round up newsletter https://npr.org/indicatornewsletter! — Sign up for Planet Money’s weekly longform newsletter! https://www.npr.org/newsletter/money — Buy the Planet Money book https://lnk.to/i3AukBdDWE — Find our socials, YouTube and more https://linktr.ee/indicator_npr! — For sponsor-free episodes, subscribe to NPR+ https://plus.npr.org/ Support public media with NPR+ and enjoy perks for over 25 podcasts like this one. This show’s perks include bonus episodes and sponsor-free listening. Learn more atplus.npr.org http://plus.npr.org/. These episodes of The Indicator from Planet Money were produced by Corey Bridges and Cooper Katz-McKim. They were engineered by Travis Hagan and Cena Loffredo, and fact-checked by Sierra Juarez. They were edited by Julia Ritchey and Kate Concannon. Support public media with NPR+ and enjoy perks for over 25 podcasts like this one. This show’s perks include bonus episodes and sponsor-free listening. Learn more at plus.npr.org http://plus.npr.org/. See pcm.adswizz.com https://pcm.adswizz.com for information about our collection and use of personal data for sponsorship and to manage your podcast sponsorship preferences. NPR Privacy Policy https://www.npr.org/about-npr/179878450/privacy-policy

• 0:00Speaker 00

  This message comes from Edward Jones, where they believe rich means opening yourself to new possibilities. That's why your dedicated financial advisor meets you where you are, helping you move forward with confidence. Let's find your rich. Edward Jones. Member SIPC.

• 0:19Speaker 01

  This is Planet Money from NPR.

• 0:24Speaker 02

  Hey, Rekki.

• 0:25Speaker 03

  Hey, Wayland. Tell me, what could you do if you wanted to invest $100 in Apple stock, but you only had $50?

• 0:33Speaker 02

  Oh, I know the answer. You are talking about margin trading, right?

• 0:39Speaker 03

  Absolutely.

• 0:40Speaker 02

  I could set up a margin account with my brokerage firm, put my $50 in there, and then they could lend me the other $50, of course, at a very high interest rate, and then I could buy that stock.

• 0:51Speaker 03

  Let's rip some day trades. Absolutely right.

• 0:53Speaker 02

  Oh, no.

• 0:54Speaker 03

  Investors in the US stock market are making a lot of these margin trades these days. The total amount of borrowing is at an all-time record level, over $1.5 trillion. That's up by 50% from a year ago.

• 1:09Speaker 02

  Woof, that is a lot of leverage. Hello and welcome to Planet Money. I'm Wayland Wong.

• 1:15Speaker 03

  And I'm Rekki Mulvey. Investing behavior is changing, a lot. On one hand, it's easier than ever to participate in the stock market. That means more people can share in wealth creation. Great, in theory. On the other hand, we see more people taking more risks. So today on the show, when margin trading goes wrong, a debt-fueled stock market crash in South Korea gives us a cautionary tale. And can sports betting be an investment? This is a growing view of gambling. We have the data on how that works out.

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• 3:05Speaker 02

  The amount of margin debt at US brokerages is now greater than the total amount of American credit card debt. More money is being borrowed to play with the stock market than we've racked up on our Amexes.

• 3:16Speaker 03

  And making profits with other people's money is great. The problem is when markets go down, you still have to cover that loan and the interest.

• 3:24Speaker 05

  If the price of the stock goes down too much, you have two choices.

• 3:28Speaker 03

  That's Heather Tuk, a finance professor at Yale.

• 3:31Speaker 05

  You can either sell the stock to start to pay down that loan or post more margin to your account, that is, infuse more capital into your margin account.

• 3:43Speaker 02

  In other words, Heather says, put up more cash or be forced to sell investments to cover the loan. In the US, investors can use margin trading for pretty much any stock, but it's different in India. So Heather and her co-author decided to take a look at how margin trades play out there.

• 3:59Speaker 05

  In India, the regulators were, in some ways, kind of academics in that they designed rules that made studying this question a lot easier.

• 4:09Speaker 03

  Easier because there's a dividing line in India between stocks that can be bought with margin and others that can't. She says that made it a great place for a natural experiment on whether margin trades cause market instability. And what they found was, yes, margin mattered, especially during a financial crisis.

• 4:27Speaker 05

  It's during those downswings that we get this amplification.

• 4:32Speaker 02

  The margin basket of stocks went down significantly more than the basket of non-margin stocks during the crisis. Many margin sellers were forced to sell their investments to cover loans. This forced selling helped amplify overall losses.

• 4:45Speaker 03

  A similar phenomenon just happened in the South Korean stock market.

• 4:49Speaker 02

  Right. Investors there are excited about two companies, SK Hynix and Samsung. They make memory chips for AI data centers. And, you know, as we've covered on the show, lots of demand for these chips right now.

• 5:01Speaker 03

  SK Hynix and Samsung dominate South Korea's stock market. The value of both companies skyrocketed as more investors got excited about their chips.

• 5:10Speaker 06

  This thing is so big and it's moving so fast.

• 5:12Speaker 02

  That's Yurian Timmer, director of global macro at Fidelity Investments.

• 5:16Speaker 06

  Semiconductor earnings have tripled in the last year. Like, it's crazy. Everything is sort of in fast forward and is just multiple dimensions more of what we might typically see in a boom-bust cycle.

• 5:28Speaker 02

  Earlier this year, South Korea legalized single-stock leveraged ETFs. These look just like a normal ETF on the outside, except there's extra leverage, futures, and various other financial tricks on the inside to multiply your returns. What could possibly go wrong?

• 5:45Speaker 03

  Yeah, there's a downside, is that if the ETF loses value, the losses are also magnified.

• 5:52Speaker 02

  Now, these investments have been legal in the US since 2022. South Korea wanted to keep up, so investors cut money in its stock market.

• 6:00Speaker 03

  These ETFs became more popular in Korea as the value of those semiconductor companies grew, making up 20% of trading on the South Korean exchange on some days. Yurian is not a fan of these tools.

• 6:12Speaker 06

  I call them weapons of self-destruction. I don't know why regulators approve these things.

• 6:18Speaker 02

  His pessimistic view seems to hold, in Korea at least. The value of its stock market plummeted 40% at one point. The companies still estimate booming demand for their memory chips, but investors got a little less excited. The leverage bets started to unwind, and margin traders had to sell their investments.

• 6:36Speaker 03

  More than 3% of the South Korean adult population received a margin call. Their broker's saying, hey, you need to sell something or put up more cash to cover these loans.

• 6:45Speaker 02

  The sell-offs seem to have little to do with the future prospects of these companies. SK Hynix saw revenue more than triple over the past year, and it has plenty of demand for its chips.

• 6:56Speaker 06

  You look at the fundamentals of these companies, they're fabulous. But so it's just a matter of you're in over your skis, and when you use leverage, you can lose all your capital.

• 7:05Speaker 03

  Yurian is essentially saying that many South Korean investors took on too much risk, which completely blew up their accounts.

• 7:12Speaker 02

  Goldman Sachs estimated that about 360,000 brokerage accounts were forced to sell all of their investments to cover their debts. The majority of these accounts belong to people under the age of 35, according to Citibank.

• 7:25Speaker 03

  Younger people felt confident taking on a lot of risk and maybe had less experience in financial markets. That's who got hurt.

• 7:32Speaker 02

  Now, is there a lesson for the United States? As we've discussed, we're seeing a record level of margin debt here. But here's the interesting thing. While there was limited interest in leveraged ETFs initially, in the last couple of years, it spiked.

• 7:47Speaker 03

  And the Federal Reserve can do something about this, at least when it comes to margin debt. The bank has a little-known job. The bank essentially tells investors, how much money do you need in your pocket to borrow a dollar?

• 7:59Speaker 02

  Right, so if we go back to that example we started with, if you have $50 to invest in Apple and you want to invest $100 total, the Fed could say, okay, we should be more cautious. Your brokerage firm can loan you, say, $25, not $50.

• 8:15Speaker 03

  The Federal Reserve played around with this requirement in the years after the Great Depression. Interestingly, that crash came after soaring margin debt-fueled a bubble.

• 8:25Speaker 02

  Should the Fed get involved today? This is more complicated. Yes, margin debt is at a historic level, but Yurian says it's not growing as fast as it has in the past.

• 8:35Speaker 06

  Of course, 2000 comes to mind. That was, of course, the internet bubble. And the rate of change of margin debt then was 81%.

• 8:43Speaker 03

  Today, it's about 40%.

• 8:45Speaker 02

  So considerably faster. Yurian believes we are in a yellow zone, not a point of panic.

• 8:51Speaker 06

  That's why I'm saying that you've got to look, you know, not just at the sentiment, but something has to crack in the fundamental story.

• 8:58Speaker 03

  The Fed hasn't touched these investing loan requirements since 1974. Still, we wondered if now was a good time to revisit this requirement and break out a tool it hasn't used in decades. This would slow down the amount of new debt in the stock market. We reached out to the Fed's press office, but could not get anyone to speak to us on the record.

• 9:18Speaker 02

  Yurian Timmer believes the Fed may not want to get involved with the margin trades for a simple reason.

• 9:23Speaker 06

  I think the Fed generally does not get into the stock market slash bubble business. They figure nobody can predict these things. Remember, Greenspan especially called the Nasdaq a bubble in '96, and it ran for four more years. So I think they're at least are humble enough to know they can't time these things.

• 9:43Speaker 02

  Spotting a bubble forming is easy. Timing the pop is much more difficult. You don't want to shut down a party that could keep rocking for a while.

• 9:52Speaker 03

  Wayland, I feel really confident about the outcome of a UFC fight this weekend.

• 9:58Speaker 02

  Oh, no.

• 9:59Speaker 03

  However, I only have $20 in my pocket. So I was wondering.

• 10:05Speaker 02

  Can Polymarket lend you this money? I'm not lending you.

• 10:07Speaker 03

  Can Wayland? How much money do you have in your wallet right now?

• 10:10Speaker 02

  The Bank of Wayland. I don't carry cash. I'll have you go.

• 10:15Speaker 03

  After the break, some new research on just how many young people think of sports betting as investing, and how one state government is starting to put up guardrails.

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  Stay tuned for the following announcements and messages from our sponsors. This message comes from LinkedIn. As a small business owner, you wear many hats. You're the owner, the marketer, the seller, the hire. With LinkedIn, you have the tools to help you boost your visibility, find prospective customers, and find the best team for your small business, all in one place. So while LinkedIn can't hang up all of your hats, it makes it easier to wear them all. Learn more at LinkedIn.com/PlanetMoneyShow.

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• 12:04Speaker 03

  The line between investing and gambling is blurry now. With me for this next story, my co-host at The Indicator, Adrian Ma.

• 12:11Speaker 07

  Yeah, get this. In the past year, more than half of Gen Z say they've taken dollars intended for investing and put it towards sports gambling.

• 12:20Speaker 03

  And you can understand why sports betting seems like easy money when many sports betting commercials advertise hundreds of dollars in free bets just for making a small deposit.

• 12:30Speaker 04

  All customers get a profit boost every MBA playoff game.

• 12:33Speaker 03

  New customers spend $5 and get 300 in bonus bets if you win. New customers turn $5 into 200 instantly in bonus bets.

• 12:40Speaker 07

  The federal ban on sports betting was struck down eight years ago, and we're just now learning the effects on younger people.

• 12:46Speaker 03

  For some people, sports betting is more than entertainment. They're trying to make real money with it. In a recent survey, about a quarter of Gen Z said they view sports betting as a high-risk investment strategy or a way to accelerate some kind of goal. Gen Z is anyone aged around 18 to 29. I think, you know, number one, it's not good.

• 13:06Speaker 07

  That's Dan Egan, vice president of Behavioral Science and Investing at Betterment. They studied the relationship different generations have with investing and gambling. And we got some of the numbers you heard from their recent poll.

• 13:17Speaker 03

  I have friends who like, I don't know, collecting cars. But they're honest about the fact that that car, they're not making money on it. It's a hobby. They enjoy it. They enjoy looking at the car. I think the dangerous aspect is when we start confusing our hobbies for investing. Dan says one reason why so many members of Gen Z are using investing dollars for gambling is overconfidence. Like, I watch a ton of basketball. I can spot a winner.

• 13:40Speaker 07

  And also, some people in younger generations feel this economy just isn't working for them.

• 13:44Speaker 03

  So I think that's one of the drivers, is the idea that in order to get ahead, just like doing my job, saving regularly, and focusing on my career, isn't going to be enough. I have to have some big financial wins.

• 13:55Speaker 07

  But this isn't true across the board.

• 13:57Speaker 03

  Are you Gen Z?

• 13:59Speaker 04

  Yes.

• 14:00Speaker 03

  Sam Mascara is a 27-year-old incoming PhD student at the University of Michigan. And to be clear, he's three years younger than me, so we are not talking about an alien population here, Adrian.

• 14:12Speaker 07

  Sam used to bet on basketball, and he saw the ads promising hundreds of dollars in free bets for just a small deposit.

• 14:19Speaker 03

  And one of Sam's coworkers said, hey, if you sign up for a sports betting account, then I get a reward too.

• 14:25Speaker 04

  So he was like, if you join, there's this promotion going on. And I figured it was like $5. The NBA preseason was just starting, so I figured it'd be something to try.

• 14:35Speaker 07

  Hmm, why does this feel like a after-school special in the making? Sam says he'd use just about any platform that had a bonus. Bet MGM, FanDuel, even the old ESPN platform.

• 14:47Speaker 03

  And he says that he never bet more money than he was willing to lose. But worries about people even younger than him, Gen Alpha. He taught high schoolers.

• 14:55Speaker 04

  I was seeing economically disadvantaged students. Like, they would tell me, like, this is an easy bet. Or like, this is like an easy way to make money.

• 15:04Speaker 07

  He says that some students would find an adult to sign them up for a sports betting account and start playing.

• 15:09Speaker 04

  These are 16-year-old kids. They did not have the self-control to say, I'll only use the promotion money. I'd hear kids talking, like, they're putting up like $200 of their money on a random, like, basketball game.

• 15:24Speaker 03

  And to be clear, we're just talking about the sports books here, like FanDuel and DraftKings, not prediction markets. That's a slightly different beast.

• 15:32Speaker 07

  Yeah, and we've reported on how prediction markets like Polymarket and Kalshi can advertise to vulnerable people. You can find a link to that in the show notes.

• 15:41Speaker 03

  State governments are starting to react to the negative effects of sports betting, like addiction. Colorado just passed a new law that introduced new rules for sports betting companies. For example, no more depositing money with a credit card. If you want to gamble, you can't take out debt.

• 15:56Speaker 07

  Matt Ball is a Democratic state senator in Colorado. He co-sponsored the bill with a Republican colleague, Byron Pelton.

• 16:02Speaker 03

  Matt says he's not banning sports gambling. In fact, he's gambled himself.

• 16:06Speaker 04

  I've bet on sports before. I've been the commissioner of a fantasy league for about 15 years.

• 16:11Speaker 07

  But he sees issues with Gen Z and gambling, specifically young men. A couple of constituents came to talk with him about it.

• 16:18Speaker 04

  And that led to a lot more conversations with, you know, everyone from mothers who had sons come home from college having put, you know, $15,000 on the credit card in one night, to national experts in problem gambling.

• 16:32Speaker 03

  Matt is worried about sports betting as a public health issue.

• 16:36Speaker 07

  Yeah, and problem gambling is associated with more bankruptcies, loan defaults, domestic violence, and suicides.

• 16:43Speaker 03

  So Matt and Byron's big idea? Add some friction. Limit the ways that sports books can reach their customers. Colorado became the first state, where sports betting is allowed, to ban sports books from sending customers push notifications on their phones and text messages.

• 16:59Speaker 07

  Reminders like, hey, looks like a game is on. Want to bet?

• 17:03Speaker 03

  Another part of their law is limiting the number of deposits that a customer can make in a single day. That number is now six. And at first, I thought this sounded kind of nuts. Customers can always move to another sports book, find ways around it. But Matt explained why he wanted to limit the number of times gamblers could add money to their accounts in just one day.

• 17:23Speaker 04

  When you have a problem, you might set a budget. I've got $100. I'm going to bet it this weekend. You blow through that. Hey, I got to make it back. You deposit $200, right? You lose that. You deposit $400. You just keep chasing your losses. One thing that we want to measure is, how effective is that?

• 17:41Speaker 07

  And Matt says ultimately, this bill is a test. Would a deposit limit even make a difference?

• 17:46Speaker 04

  I'd be the first to admit, we don't have any data. So in some sense, like, we're kind of guessing here.

• 17:52Speaker 03

  You rarely hear lawmakers just say, we're kind of guessing with the law, Adrian.

• 17:56Speaker 07

  I mean, I guess it speaks to just how novel this situation is. They're kind of taking the spaghetti-at-the-wall approach to bill writing.

• 18:04Speaker 03

  Matt and Byron's bill is a rare bipartisan agreement to find some solutions for a real problem.

• 18:10Speaker 04

  We had everyone from, you know, organizations that care about mental health and care about kids, to, you know, groups on the religious right who have a, you know, fundamental objection to gambling, who were some of the same groups that opposed the legalization of gambling back in 2019.

• 18:25Speaker 07

  Colorado signed the bill into law this summer, and Matt says legislators in other states are starting to reach out to him.

• 18:31Speaker 03

  At least 10 other states don't allow bettors to make deposits with a credit card, like Colorado, a number that's growing.

• 18:38Speaker 07

  Dan Egan from Betterment, the behavioral finance guy, he says there may be another optimistic angle.

• 18:44Speaker 03

  I feel like every generation lives in a new context that was different than the previous one's context when they were that age. And it's entirely possible what we're seeing is just a new coming-of-age story about how people engage with this stuff. As generations grow older, they may realize that sports betting is not easy money, or any kind of investment strategy.

• 19:04Speaker 07

  Dan pointed to research on day trading in the stock market, which you could argue is adjacent to gambling. Like, traders are trying to make money from quick swings in the market.

• 19:13Speaker 03

  The research found that most day traders generally quit after losing money for a couple of years. Maybe it's an expensive education, but hopefully they will learn. Losing money consistently can get old, and some people in younger generations already understand the game without losing money.

• 19:30Speaker 07

  Like Sam, our former Gen Z sports gambler. He says he took the promotion money, bet on some games, and then cashed out.

• 19:37Speaker 04

  I never bet any of my own money, though. That felt like a good trap that I didn't want to get into. I won probably over like $1,000. Not anything like crazy, but it's still like, it was fun.

• 19:50Speaker 03

  Since when is $1,000 not a lot of money? I feel like I could have some fun with a grand.

• 19:55Speaker 07

  Oh, Ricky, don't fall into the trap.

• 19:58Speaker 03

  Take the bonus and run.

• 20:01Speaker 03

  A great way to get more Planet Money, or give Planet Money to a friend who needs it, is our book has a whole chapter on how to think about investing. It is Planet Money, A Guide to the Economic Forces That Shape Your Life. Thanks to everyone who rated it and reviewed it. Please keep that up. And if you don't already subscribe to Planet Money's daily podcast, The Indicator, that's where today's episodes first appeared. One slice of the economy explained every day in 10 minutes or less. Follow The Indicator and Planet Money. Today's episodes of The Indicator from Planet Money were produced by Corey Bridges and Cooper Katz-McKim, engineering by Travis Hagan and Sina Lefredo. It was fact-checked by Sierra Waters. Julia Ritchie edited our story on gambling. Kate Buchanan edits The Indicator. This episode of Planet Money was produced by Jane Sneed.

• 20:46Speaker 03

  Alex Goldmark is our executive producer. My co-hosts were the wonderful Wayland Wong and the amazing Adrian Ma. I'm Ricky Mulvey. This is NPR. Thanks for listening.

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