Prediction markets pose a high-risk temptation for young Canadians, financial planner warns

TORONTO — Prediction markets, which allow users to place bets on financial, economic and climate-related events, are a dangerous new temptation for young Canadians, a Toronto financial planner says.

Anita Bruinsma, a certified financial planner and parent, said the platforms are flashy, fun, easy to use and highly addictive.

"For most people, prediction markets are far from a legitimate investment strategy," Bruinsma said.

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A recent study of the U.S.-based Polymarket platform showed that just 1 per cent of users captured about 77 per cent of the profits, and those winners use complex strategies most people cannot deploy.

In the United States, about one-third of Gen Z, aged 14 to 29, are either participating in or plan to participate in prediction markets or sports betting, according to a study by Northwestern Mutual.

A separate study by Betterment found about one-quarter of Gen Z investors consider sports betting a deliberate part of their long-term financial strategy.

In Canada, young adults can participate in these markets starting at 18 or 19, depending on their province.

Bruinsma said parents should try to steer their adult children away from them, starting by having them read about the complex risks involved, such as liquidity risk, information asymmetry and market manipulation.

"Risk goes way beyond just getting your bet wrong," she said.

She also recommends highlighting the gambling-like nature of prediction markets, despite efforts by the two companies offering the service in Canada to market it as investing.

Wealthsimple, a financial company with roots in online investing, displays wager information on a ticker-tape style webpage and calls a bet a "tradable position." Interactive Brokers refers to participants as investors in its video on the topic.

"It all looks a lot like investing," Bruinsma said. "Guide your children toward seeing that it’s not, including reading the details about how unlikely they are to actually make money."

If young adults want to invest, she said parents should help them do it properly, such as by opening an online brokerage account and investing in index-tracking exchange-traded funds.

Bruinsma said the greater opportunity lies with younger children, where building good financial habits is the best defence against risky behaviour later.

"The most impactful thing you can do is talk about money," she said. "When you make it part of regular conversation, kids learn that managing money responsibly is part of being an adult."

She recommends being open about income and expenses, getting children a bank account at a young age, and having them open a tax-free savings account when they reach the age of majority.

Another teaching opportunity is allowing kids to make their own spending decisions when the stakes are low.

"Feeling the impact of making a poor choice is the best way to learn about being responsible with money," Bruinsma said.

However, she said this approach does not apply to prediction markets.

"No amount of betting is a good idea for young people, it’s simply too easy to get pulled in," Bruinsma said.

She said while prediction markets are not the only money-related pitfall, they may be the most dangerous, and parents should build their own understanding to talk to their kids about it.

With files from The Globe and Mail