In short
How investing risk is rising, driven by leverage (margin debt and leveraged ETFs) and by younger people treating gambling-like bets as “investing.”
Guests/backgrounds
Heather Tuch, Yale finance professor and co-author studying margin trading’s effects using India’s natural experiment. Yurian Timmer, Fidelity Investments director of Global Macro. Dan Egan, Betterment vice president of behavioral science and investing, researching Gen Z views of sports betting.
Key claims
U.S. margin borrowing is over $1.5T, exceeding credit card debt; margin losses amplify downturns via forced selling. India and South Korea show margin can destabilize markets during crises. Leveraged single-stock ETFs in South Korea contributed to a 40% market plunge and margin calls for over 3% of adults. Gen Z increasingly uses sports-betting money as “high-risk investing,” driven by overconfidence and bonus ads.
Notable examples
South Korea’s SK Hynix and Samsung surge/unwind; Goldman Sachs estimate of ~360,000 forced-sell brokerage accounts; Colorado’s sports-betting guardrails (no credit-card deposits, no push notifications/texts, max six deposits/day).
Written by AI. May contain mistakes. Listen to the episode to check what was said.
Chapters
Tap a time to open that second in VOUnderstanding Margin Trading
0:30 to 1:43
Exploration of margin trading and its risks in investing.
“stock market are making a lot of these margin trades these days.”
Understanding Margin Trading
2:11 to 2:39
Exploration of margin trading and its risks in investing.
“Inside it, every conversation, every mistake, every expectation.”
The Impact of Margin Debt
2:43 to 4:35
Discussion on margin debt levels and implications in the U.S.
“brokerages is now greater than the total amount of American credit card debt.”
South Korea's Stock Market Crash
4:35 to 6:45
Examining the recent stock market crash in South Korea.
“And, you know, as you've covered on the show, lots of demand for these chips right now.”
Lessons from Margin Trading
6:45 to 9:27
What the U.S. can learn from South Korea's market issues.
“Goldman Sachs estimated that about 360 ,000 brokerage accounts were forced to sell all of their investments to cover their debts.”
Betting vs. Investing
9:27 to 10:54
Exploring the blurred lines between sports betting and investing.
“You don't want to shut down a party that could keep rocking for a while.”
Gen Z and Sports Gambling
10:59 to 14:00
Analyzing Gen Z's perspective on sports gambling as investing.
“What if your next marketing campaign was already built before you even opened your laptop?”
The Risks of Sports Betting for Gen Z
14:00 to 15:28
Learn about the concerns regarding sports betting among younger generations, particularly Gen Z, and the challenges they face.
“Why does this feel like a after-school special in the making?”
Legislative Measures to Control Gambling
15:28 to 17:14
Explore Colorado's new laws aimed at regulating sports betting and the motivations behind them.
“Laura, been the commissioner of a fantasy league for about 15 years.”
Understanding the Impact of Gambling Restrictions
17:14 to 18:24
Examine the potential effectiveness of deposit limits and other restrictions on gambling behavior.
“So in some sense, like, we're kind of guessing here.”
Show all 12 chapters
Generational Perspectives on Gambling
18:24 to 19:12
Discuss how perspectives on gambling and sports betting may shift as younger generations mature.
“Dan pointed a research on day trading in the stock market, which you could argue is adjacent to gambling.”
A Cautionary Tale of Betting
19:12 to 19:26
Hear a personal account of someone who used promotional betting money wisely, avoiding pitfalls.
“Not anything like crazy, but it's still like, it was fun.”
Transcript
Automatic transcript. May contain errors.0:00Carmen Rodriguez:This message comes from Schwab. At Schwab, you can get everything from self-directed investing to full-service wealth management all in one place. No matter your investing goal, life stage, amount to invest, or know-how, you can invest your way with Schwab. This is Planet Money from NPR.
0:22Kyle Rice:hey ricky hey waylon tell me what could you do if you wanted to invest 100 bucks in apple stock
0:30Carmen Rodriguez:but you only had 50 oh i know the answer you are talking about margin trading right absolutely i could set up a margin account with my brokerage firm put my 50 bucks in there and then they could lend me the other 50 bucks of course at a very high interest rate and then i could buy that stock
0:49Kyle Rice:Let's rip some day trades. Absolutely right. Investors in the U.S. 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.
1:08Carmen Rodriguez:Woof, that is a lot of leverage. Hello and welcome to Planet Money. I'm Waylon Wong.
1:13Kyle Rice:And I'm Ricky 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.
1:54Carmen Rodriguez:This message comes from Schwab. At Schwab, you can get everything from self-directed investing to full-service wealth management, all in one place. No matter your investing goal, life stage, amount to invest, or know-how, you can invest your way with Schwab. This message comes from BetterHelp. Imagine carrying a backpack every day. Inside it, every conversation, every mistake, every expectation. It is easy not to notice how heavy it is until someone asks if you want to put it down. Sometimes feeling better starts exactly like that. Better isn't one size fits all. Better is personal. It's therapy tailored to the individual to help lighten what you carry.
2:36Carmen Rodriguez:Match with a therapist who truly understands. Visit BetterHelp.com slash NPR. The amount of margin debt at U.S. 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.
2:55Kyle Rice: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.
3:03Carmen Rodriguez:If the price of the stock goes down too much, you have two choices.
3:07Kyle Rice:That's Heather Tuch, a finance professor at Yale. You can either sell the stock to start to pay down that loan or post more margin to your account.
3:18Carmen Rodriguez:That is, infuse more capital into your margin account. In other words, Heather says, put up more cash or be forced to sell investments to cover the loan. In the U.S., 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. In India, the regulators were in some ways kind to academics in that they designed rules that made studying this question a lot easier.
3:47Kyle Rice: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.
4:06Carmen Rodriguez:It's during those downswings that we get this amplification. 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.
4:24Kyle Rice:A similar phenomenon just happened in the South Korean stock market.
4:28Carmen Rodriguez:Right. Investors there are excited about two companies, SK Hynix and Samsung. They make memory chips for AI data centers. And, you know, as you've covered on the show, lots of demand for these chips right now.
4:40Kyle Rice:SK Hynix and Samsung dominate South Korea's stock market. The value of both companies skyrocketed as more investors got excited about their chips. This thing is so big and it's moving so fast.
4:51Carmen Rodriguez:That's Yurian Timmer, director of Global Macro at Fidelity Investments. 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. 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?
5:24Kyle Rice:Yeah, there's a downside. Is that if the ETF loses value, the losses are also magnified.
5:31Carmen Rodriguez:Now, these investments have been legal in the U.S. since 2022. South Korea wanted to keep up, so investors cut money in its stock market.
5:39Kyle Rice:These ETFs became more popular in Korea as the value of those semiconductor companies grew, making up 20 percent of trading on the South Korean exchange on some days. Yurion is not a fan of these tools.
5:50Carmen Rodriguez:I call them weapons of self-destruction. I don't know why regulators approve these things. His pessimistic view seems to hold, in Korea at least. The value of its stock market plummeted 40 percent at one point. The companies still estimate booming demand for their memory chips, but investors got a little less excited. The leverage bet started to unwind, and margin traders had to sell their investments.
6:15Kyle Rice:More than 3 % of the South Korean adult population received a margin call, their broker saying, hey, you need to sell something or put up more cash to cover these loans.
6:24Carmen Rodriguez:The sell-off seemed to have little to do with the future prospects of these companies. SK Hynek saw revenue more than triple over the past year, and it has plenty of demand for its chips. You look at the fundamentals of these companies, they're fabulous. So it's just a matter of you're in over your skis, and when you use leverage, you can lose all your capital.
6:44Kyle Rice:Urien is essentially saying that many South Korean investors took on too much risk, which completely blew up their accounts.
6:51Carmen Rodriguez: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.
7:04Kyle Rice:Younger people felt confident taking on a lot of risk and maybe had less experience in financial markets. That's who got hurt.
7:11Carmen Rodriguez: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.
7:25Kyle Rice: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?
7:38Carmen Rodriguez: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, OK, we should be more cautious. Your brokerage firm can loan you, say,$25, not$50.
7:54Kyle Rice: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.
8:04Carmen Rodriguez:Should the Fed get involved today? This is more complicated. Yes, margin debt is at a historic level, but Urien says it's not growing as fast as it has in the past. Of course, 2000 comes to mind. That was, of course, the internet bubble. And the rate of change of margin debt then was 81%. Today, it's about 40%. So considerably faster. Euron believes we are in a yellow zone, not a point of panic. 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.
8:37Kyle Rice: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.
8:57Carmen Rodriguez:Urien Timmer believes the Fed may not want to get involved with margin trades for a simple reason. 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 at least are humble enough to know they can't time these things. 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.
9:31Kyle Rice:Waylon, I feel really confident about the outcome of a UFC fight this weekend.
9:37Carmen Rodriguez:Oh, no.
9:38Kyle Rice:However, I only have$20 in my pocket. So I was wondering.
9:44Carmen Rodriguez:Can Polymarket lend you this money? I'm not lending it to you.
9:46Kyle Rice:How much money do you have in your wallet right now?
9:48Carmen Rodriguez:The bank of Wayland. I don't carry cash, I'll have you know.
Read the full transcript
9:54Kyle Rice: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.
10:10Carmen Rodriguez:This message comes from Schwab. At Schwab, you can get everything from self-directed investing to full-service wealth management, all in one place. No matter your investing goal, life stage, amount to invest, or know-how, you can invest your way with Schwab. This message comes from LinkedIn ads. Ever invest in something that seemed incredible at first, but didn't live up to the hype? For marketers, that's impressions. When ads don't create revenue, that's a tough conversation with the CFO. Instead, invest in results your CFO will love. LinkedIn Ads generates the highest ROAS of all major ad networks.
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11:29Kyle Rice:The line between investing and gambling is blurry now. With me for this next story, my co-host at The Indicator, Adrian Ma. 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. 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.
11:54Carmen Rodriguez:All customers get a profit boost every NBA playoff game. New customers bet$5 and get$300 in bonus bets if you win. New customers turn$5 into$200 instantly in bonus bets. The federal ban on sports betting was struck down eight years ago. And we're just now learning the effects on younger people.
12:11Kyle Rice: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.
12:27Carmen Rodriguez:I think, you know, number one, it's not good. 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. 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.
12:55Kyle Rice: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. And also, some people in younger generations feel this economy just isn't working for them.
13:09Carmen Rodriguez: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.
13:20Kyle Rice:But this isn't true across the board. Are you Gen Z? Yes. Sam Mascara is a 27-year-old incoming PhD student at the University of Michigan. And to be clear, he is three years younger than me, so we are not talking about an alien population here, Adrian. Sam used to bet on basketball, and he saw the ads promising hundreds of dollars in free bets for just a small deposit. And one of Sam's co-workers said, hey, if you sign up for a sports betting account, then I get a reward too.
13:50Carmen Rodriguez:So he was like, if you join, there's this promotion going on, And I figured it was like five bucks. The NBA preseason was just starting. So I figured it'd be something to try. 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.
14:08Kyle Rice:Bet MGM, FanDuel, even the old ESPN platform. 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.
14:20Carmen Rodriguez: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. He says that some students would find an adult to sign them up for a sports betting account and start playing. 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.
14:49Kyle Rice: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.
14:57Carmen Rodriguez: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.
15:06Kyle Rice: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. Matt Ball is a Democratic state senator in Colorado. He co-sponsored the bill with a Republican colleague, Byron Pelton. Matt says he's not banning sports gambling. In fact, he's gambled himself. I've bet on sports before. Laura, been the commissioner of a fantasy league for about 15 years.
15:36Carmen Rodriguez:But he sees issues with Gen Z and gambling, specifically young men. A couple of constituents came to talk with him about it.
15:43Kyle Rice: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. Matt is worried about sports betting as a public health issue. Yeah, and problem gambling is associated with more bankruptcies, loan defaults, domestic violence, and suicides. So, Matt and Byron's big idea? Add some friction. Limit the ways that sportsbooks can reach their customers. Colorado became the first state, where sports betting is allowed, to ban sportsbooks from sending customers push notifications on their phones and text messages.
16:24Kyle Rice:Reminders like, hey, looks like a game is on. Wanna bet? 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. 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.
17:00Kyle Rice:You deposit$400. You just keep chasing your losses. One thing that we want to measure is how effective is that? And Matt says, ultimately, this bill is a test. Would a deposit limit even make a difference? I'd be the first to admit we don't have any data. So in some sense, like, we're kind of guessing here. You rarely hear lawmakers just say we're kind of guessing with the law, Adrian. 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. Matt and Byron's bill is a rare bipartisan agreement to find some solutions for a real problem.
17:35Kyle Rice: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. Colorado signed the bill into law this summer, and Matt says legislators in other states are starting to reach out to him. At least 10 other states don't allow bettors to make deposits with a credit card, like Colorado, a number that's growing.
18:02Carmen Rodriguez:Dan Egan from Betterment, the behavioral finance guy, he says there may be another optimistic angle. 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.
18:22Kyle Rice:As generations grow older, they may realize that sports betting is not easy money or any kind of investment strategy.
18:29Carmen Rodriguez:Dan pointed a 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.
18:38Kyle Rice: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. Like Sam, our former Gen Z sports gambler.
18:58Carmen Rodriguez:He says he took the promotion money, bet on some games, and then cashed out. I never bet any of my own money, though. That felt like a 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.
19:15Kyle Rice:Since when is$1 ,000 not a lot of money? I feel like I could have some fun with a grand. No, Ricky, don't fall into the trap. Take the bonus and run. 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.
19:52Kyle Rice:Follow The Indicator from Planet Money. Today's episodes of The Indicator from Planet Money were produced by Corey Bridges and Cooper Katz McKim. Engineering by Travis Hagen and Sina Lafredo. It was fact-checked by Sierra Juarez. Julia Ritchie edited our story on gambling. Kate Buchanan edits The Indicator. This episode of Planet Money was produced by James Sneed. Alex Goldmark is our executive producer. My co-hosts were the wonderful Weyland Wong and the amazing Adrian Ma. I'm Ricky Mulvey. This is NPR. Thanks for listening.
20:43FDIC.
20:44Carmen Rodriguez:This message comes from Bowl & Branch. Change the way you sleep with soft 100 % organic cotton sheets from Bowl & Branch. Designed to help you fall asleep faster with airy blankets, cloud-like duvets, and breathable sheets. Experience pure comfort on night one and feel your sheets get softer with every wash. Discover the difference with 15 % off your first order at bolandbranch.com with code NPR. Exclusions apply. See site for details. This message comes from Northwestern Mutual. For nearly 170 years, they've helped clients succeed with strategies to help grow and protect their money. Get started at nm.com, the Northwestern Mutual Life Insurance Company, Milwaukee, Wisconsin.
From the publisher
According to one study, more than half 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
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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.
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