Gambling has been part of human culture and recreation since time immemorial. Children gamble over trading cards and adults gamble away their life savings. It’s a cliche, and part of everyday life. Many nations around the world allow resort-style casino gambling, and digital gambling devices have moved from convenience stores to the cloud in just a few years. Depending on where you live, you’ve got any number of gambling options available to you through your mobile device. Some of them are gussied up as “investments”, others look like their real-world card-based counterparts. But in every situation you can make a lot of money or lose a lot of money, depending on your skill and a lot of chance.
The question is: Can gambling ever be part of a sound financial strategy? The answer, to listen to conservative personal finance media is NO NEVER! But surely there is more to it. Let’s take a look at the possibility of financially sensible gambling.
It is clear that gambling is an enjoyable pastime to many. Like other pastimes, it’s an exchange of money for enjoyment. Unlike other pastimes, there’s the chance that you might come out ahead. Left to chance, you’ll lose more than you win, as most games of chance are organised to favour the house. But with skill and experience, people are able to beat the odds time and again. But what about those of us who are not professional gamblers?
The average person doesn’t know how to count cards or read facial tells. For us, gambling is nothing more than the flip of a (very complex) coin. Sometimes we win, sometimes we lose. Are we supposed to forbid ourselves from ever gambling, simply because it is a use of our money that is outside of our control?
Not necessarily. Safe gambling means making calculated risks. The same could be said of traditional stock market investment. To many, the stock market is just one big casino, with people throwing their money at various interests, with varying levels of success. That is the reality of the situation…for people who know nothing about the stock market. For people who understand how the stock market works, the situation is entirely different.
The key is to limit your risk according to your level of skill. In other words, know what you don’t know. This can be hard for people who are just dabbling in risky financial pastimes like stock market investment or casino gambling. For people who don’t know much, and who are determined to learn nothing more, it’s important to risk only as much money as you can afford to lose. People who want to limit their risk, however, will gradually increase their knowledge until they can make more calculated risks, with the real hope of making money rather than losing it.
It all comes down to knowledge and acceptable risk. Like so many other risky behaviours, prohibition and abstinence education will fail more than they succeed. The better practice, as it pertains to gambling and investment (to name a few), is education and risk management. There are those for whom these practices are compulsive, but most people can manage them fairly well. Managed as described, they can be part of a sound personal finance plan, as long as they occupy only the space allotted them.
