Charles Schwab's president and CEO, Rick Wurster, voiced concern Wednesday that young people are confusing gambling with investing — and suggested that financial services apps may be fueling the misunderstanding.
“I'm not up here to denounce gambling. I'm sure there's lots of gamblers in this room and people treat it as a form of entertainment, like going to a movie or having a night out, whatever it may be,” he told the audience at Schwab’s Impact conference in Denver.
“I'm here to talk about the trend that I see in conflating gambling and investments. Gambling has certainly taken off the last five years,” he said, noting the expansion of legalized sports betting.
“Last year there were 150 billion legal wagers in our country. Five years ago, that number was 13 billion. There's been more than a tenfold increase in gambling in our country. More than half of young men are on a gambling app today,” Wurster noted. “What I'm here to talk about is that now in financial services, there's a blending of investing in gambling."
Wurster suggested it started with good intentions with so-called prediction markets, with financial services firms building the ability for clients to take a view on what would happen with the employment report, the inflation report or what the Federal Reserve would do.
The prediction markets didn’t really take off, though, as companies realized that the general public wasn't very interested in these events and that those who were could act on them by trading stocks and bonds, he explained.
“Then the election happened and you saw this incredible growth of interest in prediction markets betting on the election. And these financial services companies thought to themselves, ‘This is incredible. We have this great windfall, lots of money coming in, lots of transactions and activity among our clients. How do we replicate this?’” Wurster added.
Presidential elections happen only once every four years, “but there's things that happen every Saturday and Sunday that a lot of Americans care about, and that's football,” he noted.
With legalized sports gambling, “you've seen an incredible rise on these financial services apps of people gambling on sports. In fact, if you log into some of the well-known financial services apps on a Monday and check your balances, you are likely to get a pop-up alert asking you if you want to bet on the Monday night football.”
“The challenge I see with this is that investing over the long run pays off. You all have dramatically enhanced the financial lives (of clients) by being trusted fiduciaries, getting them invested, counseling them about what to invest in and how to invest,” Wurster said, noting a major difference from gambling.
“Only 5% of the people that go on gambling apps pull out more money than they put into the gambling app. It is the opposite of the benefits of being a long-term investor. And I hope as an industry that we're able to tell the story to clients about the difference between gambling and investment. … I just don't want young people in our country to think that betting on the Monday night football game is equivalent to being invested for the long term in stocks and bonds.”
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