Prediction markets and the shifting goalposts of adulthood

There is nothing wrong with being a skeptic of the betting boom. Charles Fain Lehman of the Manhattan Institute is one such person, and when Kalshi announced it was setting monthly deposit caps of $2,500 for all traders aged 18 to 20, Lehman remained unimpressed.“Ah, if you’re an 18-year-old, you can now only lose $30,000 a year on Kalshi. Because that’s ostensibly not a lot of money for an 18-year-old, I guess?” he quipped at betting and prediction analyst Bill Speros.Lehman is not wrong. Losing $30,000 a year on Kalshi or anywhere else would be devastating for the average 18-year-old. But Lehman’s pithy rhetoric raises the question: How would this scenario even unfold for an age demographic that doesn’t have much cash on hand to spend by debit, and who don’t, on average, qualify for credit cards with limits high enough for that kind of impropriety? Federal law already sees to that. Since 2009, the Credit CARD Act has barred issuers from issuing a card to anyone under 21 unless they can show independent income or provide a co-signer. So what, exactly, is he willing to allow adults to lose money on? My intention is not to do a dress rehearsal of libertarianism versus “govern me harder” conservatism with Mr. Lehman, but to point out that you can’t protect free people from every bad choice without making them a little less free — and that once you start, there’s no obvious place to stop.On any federally regulated financial exchange, including the New York Stock Exchange and Nasdaq composite, there is nothing stopping a newly minted adult from setting up an account, linking their bank, and pouring money into an exchange-traded fund or hot stock they heard about on a podcast — without any serious working knowledge of what they purchased or why it might be volatile. Retail traders fueled by energy drinks and Reddit humor poured over $1 billion into the infamous GameStop meme stock event, where 67% of traders lost considerable money for nothing more than “LOLs.”Kalshi, which the Commodity Futures Trading Commission oversees as a financial exchange rather than a sportsbook, has alluded to all of this in defending its 18-and-up policy.This is everyday risk-taking behavior, and while I understand what Lehman is getting at in his complaint, a free society has to treat personal responsibility as a high-order value, rather than opting for a Bubble-Wrapped world where no one can screw up or spend big on things that another person might find unsavory or foolish.By that line of thinking, why even let a 20-year-old apply for a business loan for their big idea? In 49 states, young entrepreneurs can take a six-figure risk, fail catastrophically, and be left with a mountain of financial woes.There are some problems with the deposit-cap logic, namely, the lack of a limiting principle. If a 19-year-old needs a $2,500 monthly allowance to protect him from himself, why does the danger evaporate on his 21st birthday? The brain-development crowd likes to remind us that the prefrontal cortex isn’t stable until 25, so why not then? Plenty of 35-year-olds have torched an annual bonus on crypto or their fantasy league, too.On net, however, the cap is a good policy because it applies only to fresh deposits, not to profits already sitting in someone’s portfolio. That means persistent losers can only do so much damage, and savvy young traders can build on their gains trade after trade.Speros points out correctly that young people are free to bankrupt themselves playing the lottery in most states, and it’s also true that 18-21-year-olds sign up for a lifetime of debt for useless college degrees without a clear understanding of what they’re committing to — the average federal borrower now carries roughly $39,500. Lehman agrees these things are also undesirable, so “whataboutism” isn’t a useful challenge.No one wants a young adult to dissolve a financial gift from their grandparents betting on the Super Bowl or on the Maine Senate race, but still, Generation Z (the current avatar for young people) notoriously spends big on luxury goods and international travel when they should be saving money for an asset or retirement. Nearly 3 in 4 millennials and Gen Zers now describe travel as “nonnegotiable” spending. Nobody at the Manhattan Institute is proposing a monthly cap on flights to Tokyo, but such a cap could be a benefit to an anime-obsessed zoomer with a large salary and no foresight.Yes, people lose money in prediction markets. The Roosevelt Institute estimates that ordinary Kalshi users have lost more than $500 million since the platform launched in 2021, and Kalshi itself concedes it has roughly 2.9 losing users for every winning one. One equity analyst found the losses were steepest among inexperienced users. That last point is the whole ballgame. Traders aged 18 to 20 account for barely 3% of Kalshi’s volume. The problem isn’t that 19-year-olds are trading — it’s that newcomers of every age are trading against sophisticated users without knowing what a bid-ask spread is.What would be positive is to nudge Kalshi and its competitors — no regulator required — to gamify financial education, and offer cash or fee credits to users who complete tutorials on the concepts serious traders actually live by: implied probability, liquidity and order-book depth, the bid-ask spread and slippage, expected value, position sizing, hedging correlated positions, and resolution risk, the fine print on how and when a contract actually settles.Better yet, make higher deposit limits something a user earns by passing those modules, not something they’re handed at 21. Develop a quasi-learner’s permit for trading to protect consumers, rather than shield them from ever “driving” due to the hazards.Greenlight’s Level Up game lets parents track progress and reward milestones in lessons on saving, investing, and credit, and U.S. Bank reports that children who finished five or more lessons set 45% more savings goals than those who hadn’t. Coinbase has been paying users in crypto to watch lessons and pass quizzes since 2018, and Revolut’s Learn & Earn program has put nearly 10,000 Australians through courses on digital assets and their risks for rewards.THE HOUSE ALWAYS WINS — AND IT’S COMING FOR YOURSNewer tools go further. Sayf, an AI trading coach, has users set their entry, exit, and risk before they trade, then imports their Kalshi history so they can see what worked and what didn’t — and the app itself never places a bet. Pair that with practice drills where no cash is on the line, and you have something closer to a financial flight simulator than a casino.There are ways to help young adults succeed financially, but treating them like children in perpetuity is not one of them.Stephen Kent is media director for the Consumer Choice Center.