With the rising popularity of gambling among young people in South Africa, there are mounting concerns about the negative effects it may have on their financial well-being.   The FSCA reports that from 1995 to 2023, the total amount of money spent on gambling in South Africa has increased from R8 billion to R815 billion, representing a drastic increase of 10 087%. Although gambling can provide enjoyment, it also carries substantial financial risks.   Some individuals are starting to see gambling as a replacement for saving money, which can harm their credit ratings, lead to higher levels of debt, and erode their financial knowledge and any savings.

The Popularity of Gambling Among Youth

Young South Africans, particularly those aged 18 to 34, are engaging in various forms of gambling, including Lotto, online gaming, and sports betting. According to a survey conducted in December 2021, 74% of South African youth mentioned they have gambled. With high youth unemployment rates and a rising cost of living, many are gambling as a quick fix for financial challenges.

What Impact Can Gambling Have On Your Credit Score?

Albeit, gambling itself does not have a direct impact on your credit score, the actions and habits linked to casual gambling can lead to financial debt that may negatively affect your credit rating. Some of these behaviours include:    

Cash Advances

These can be a costly option for obtaining cash using your credit card. Typically, the fees associated with cash advances range from 3% to 5% of the amount borrowed, and interest accumulates instantly. These charges can quickly escalate and lead to significant expenses.    

Casino Line of Credit

Casinos can provide gamblers with lines of credit. Applying for a casino credit line usually leads to a hard credit check, causing a temporary decrease in your credit score. Late payments and debts on credit lines are not disclosed to credit reporting agencies.

Payday Loans

A fast method to obtain money for gambling or to offset losses. These loans are infamous for their exorbitant fees.  Additionally, payday loans may seem low-risk due to the quick repayment and small amounts, but the fees and interest rates are higher compared to other loans, making them a costly option. 

Failure To Make Payments

If your money is trapped in gambling debts, you may fail to make payments for other obligations.   These missed payments are recorded by credit agencies and can negatively impact your credit score. If you fail to pay an account and it is sent to collections, this data can also be reflected on your credit report, potentially leading to a decrease in your score.    

Higher Credit Usage

Credit usage indicates the percentage of your available revolving credit that is currently being utilised. This is a significant component in determining your credit score, and having high credit usage can negatively impact your scores. The recommendation is to maintain a low usage of credit, with a maximum of 30% to avoid harming your credit score. If you are using credit to finance gambling activities without promptly paying off the debts, your credit usage may increase. 

Gambling Habits Can Undermine Basic Financial Literacy

Financial literacy is crucial for managing personal finances effectively. However, the allure of gambling can undermine the principles of sound financial management. Young people who prioritise gambling over savings and investments are likely to neglect essential financial skills. The concept of instant gratification from gambling winnings can erode the understanding of long-term financial planning. This shift in mindset can result in poor financial decisions and a lack of preparedness for future financial needs.

Gambling vs Investing

A rising issue is young people misconstruing gambling as being the same as investing. Gambling and investing are distinct activities, despite both revolving around the use of money to increase it. Gambling is a high-risk venture where luck plays a significant role, promising quick gains but often leading to substantial losses. The excitement of gambling can result in hasty decisions and unstable finances.

Inversely, investing is a methodical approach involving strategically placing resources into assets such as stocks, or bonds, aiming for long-term returns.   Investments are typically based on research, analysis, and market understanding, fostering financial growth and stability over time. While gambling can jeopardise financial well-being through rapid depletion of funds, investing promotes responsible money management, wealth accumulation, and the enhancement of financial knowledge.

Promoting Financial Literacy and Responsible Gambling

To mitigate the financial risks associated with gambling, it is essential to promote financial literacy and responsible gambling practices among youth. Here are some key strategies:

Financial Education: Incorporate financial literacy programs in schools and communities to teach young people about budgeting, saving, and investing. Understanding the long-term benefits of financial planning can deter them from seeking quick fixes like gambling.

Setting Limits: Encourage responsible gambling by setting strict limits on gambling expenditure and time. Understanding the importance of not exceeding these limits can help prevent financial harm.

Alternative Activities: Promote healthy and engaging activities that provide similar thrills and excitement without the financial risks associated with gambling. This could include sports, hobbies, or community projects.

Support Services: Provide access to support services for those struggling with gambling addiction. Early intervention can prevent the escalation of financial problems.

Escalating Debt Levels

Gambling often leads to a vicious cycle of debt. As losses mount, individuals may gamble more in an attempt to recover their money, leading to further financial losses. Some young people turn to loan sharks, known locally as ‘mashonisas’, to finance their gambling habits. Resulting in informal lenders charging exorbitant interest rates, trapping borrowers in a cycle of debt that is difficult to escape. The financial strain can become overwhelming, leading to severe consequences like bankruptcy. 

If you are struggling with personal debt, Vantage Debt Management is here to help. We understand the challenges that come with managing debt and offer tailored solutions to meet your specific needs. Our team of experts provide guidance to help you regain control of your finances. Don’t let debt overwhelm you.

Just remember, there’s a reason why they say the house always wins…