Is S'pore a nation of savvy investors or congenital gamblers, Lim Chih Yang asks.

A nation of gamblers – or investors?

Lim Chih-Yang

When I was in my teens, my family would go on travels together with several families. I had fond memories of those holidays where we could travel around the region taking in the sights and sounds of the various countries.

During the night, while the adults would relax and chat over their coffee and tea in the hotel lounge, we kids would all gather together in a hotel room and begin to amuse ourselves with games. Inevitably, someone would whip out a deck of poker cards and soon we would be laying wagers on blackjack, poker, dai-di games etc.

I can recall vividly an incident where we were in the midst of an intense game of blackjack when our game was interrupted by the adults, who had barged in after their late night coffee. Rather than express bemusement or anger, the adults actually took it as a matter of fact, and I recalled my uncle saying, “Put a few Caucasians together, they drink. Put a few Chinese together, they gamble.”

Now I don’t profess to be an expert in the cultural norms of the various races, and neither could I verify the accuracy of my uncle’s remarks from any sociology thesis, yet from anecdotal evidence, I must say that my uncle was spot-on in his view of the Chinese and their penchant for gambling. For the record, let me state that I am no racist — being a Chinese myself, I certainly don’t derive sadistic pleasure from putting down my own race. Yet the words of my uncle came back to haunt me today as I was on the jam-packed MRT train to work one morning.

Nothing to lose

I was reading The Straits Times when I came across this article, ‘More Low-Income Earners Gambling Bigger Sums‘ (The Straits Times, 30 May 2008). The article was on a 55 year old odd-job labourer who earns about $700 a month but spends up to $200 of his income on various forms of gambling. Contained within the article was a table highlighting the worrying trend of an increase in gambling among low-income earners. To be fair, gambling is not restricted to low income earners, and in fact, the story took pains to stress this fact by quoting Dr Arthur Lee, head of the Institute of Mental Health’s addiction medicine department:

Both the poor and the rich gamble. The rich think they can take more risks, the poor think they have nothing to lose.

In recent years, gambling has been thrust into the spotlight, and has lingered on in the nation’s consciousness. The national debate on whether to end the decades-old ban on having a casino in Singapore sparked numerous and heated discussions in the traditional media and in cyberspace. In recent times, one would be hard pressed to not have read The New Paper or The Straits Times and not come across stories related to gambling.

Two questions

It will certainly be beyond the scope of this article to explore the various aspects of gambling, so we shall limit our discussion to these two questions; Firstly, is gambling the only viable avenue for the lower class to move up economically, or are there alternative ways of getting there? Secondly, if gambling is a vice that is indeed frowned upon socially within Singapore, with the two upcoming casinos (let’s call a spade a spade, the casinos are the anchor tenants of the Integrated Resorts), how can we educate our people on the dangers of addiction to gambling, and whether there are other alternatives to gambling?

Let us take a look at question one and its implications. Now, if gambling is indeed a means for the lower class to move upward socially, what is the probability that they can hit the jackpot? Here’s a simple probability calculation for 4D: there is a 1 out of 10,000 chance of hitting the number you choose. That’s a probability of 0.01%.

Now assuming we bet $200 big on 4D with the number hitting the 1st prize, what the gambler stands to gain is potentially $400,000. But wait, since the probability of him winning is only 0.01%, his winnings will be only $40. As we all know, 4D is not as lucrative as Toto and Singapore Sweep and that is likely to mean that the probability of one hitting the jackpot for Toto and Singapore Sweep is even much lower!

Earlier we read the story of an odd-job labourer who spends up to $200 per month on gambling. Now suppose this man was to spend that same amount in a portfolio of investment instruments comprising of 25% bonds and 75% equity. Investment firm Ibbotson Associates conducted a study of financial instruments from 1942 – 2001 and found that for a portfolio as mentioned, the average annual returns are 11.27% per annum. Now let’s assume a worst-case scenario — if this odd-job labourer was to invest $200 per month over the next 15 years with a conservative return of 5% per annum, what will the figures look like? This man is likely to get an estimated gross return of $51,788 at the end of year 15 with a total investment value of $36,000. In contrast, that same spending on 4D will win him only $7,200 over the same period.

The odds are clearly stacked against the gambler. So why then do people gamble and not invest their money? A few reasons come to my mind: a public fear of investment; an impatient attitude that desires the instantaneous; and lastly, a perception that investment over the long term is boring, whereas gambling is exciting.

Gambling vs Investment

This leads us to consider the second question – how to teach people that gambling addiction is very real, and whether alternatives are available. Some of the reasons people give for why they gamble rather than invest are that they fear investment, they do not know how to invest, investment is only for the “Raffles Place people in pin-stripe shirts”, “I do not wish to lose money” etc. These reasons are real but hardly valid — in fact, not taking the risk to invest is the greatest risk of all as inflation will erode the paltry interest earned from one’s saving deposits. In this aspect, the Government should take the lead to increase public awareness and educate the people on the merits of investment versus the futility of gambling.

As the Government is the neutral party with no direct economic interest in the citizen’s investment, it is best able to provide an unbiased opinion on investment to the public, unlike fund houses, banks, financial companies etc., which would have vested interests.

Given that time is investment’s best friend, it is all the more prudent that the Government, through the Ministry of Education, teach children as early as primary school on the importance of money and the power of compounding. We are teaching our next generation to be the best doctors, engineers, accountants, dentists, lawyers etc., yet we are not teaching them how best to manage their money. What good will it be if a professional, top in his field, does not know how to manage his money? Imagine if a child can learn to save or invest $200 per month from age 16 till age 65 (retirement age) — this child would likely be able to receive a gross payout of up to $476,223, with a total investment value of $111,600 at a return of 5% per annum.

Should the values of a nation be eroded because gambling is seen as a social pastime rather than a vice, then surely but slowly our country is on a slippery road towards doom. Given the launch of the upcoming two casinos in Singapore, the Government should step up efforts to educate the public on the perils of gambling to gamblers, and the effect gambling has on their loved ones.

The Government can educate and encourage gamblers to channel their hard-earned money towards investments suitable for their risk profile.

Over time, the island of Singapore can then emerge as a country of savvy investors rather than as an island of congenital gamblers, else the words of my uncle uttered many years ago in the hotel may prove prophetic to this generation of Singaporeans.

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About the author:

Lim Chih Yang is a Financial Advisor. He was previously a Project Manager in the corporate world where he regularly clocks 14-hour-day-work in the office. He is passionate about current affairs, international politics, social concerns and loves to write on issues close to Singaporeans’ heart. Chih-Yang is also active in sports and serving in his church. When he is not catching up on the latest news he will be following the fortunes of his beloved Newcastle United Football Club.

Source of ‘Worrying Trend’ graphics: Straits Times.

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