A study out of Finland has identified an opportunity to identify problem gambling and offer addiction support during the debt consolidation process. Unlike previous studies on the topic, it used direct data from people applying to consolidate their debts, rather than less reliable self-reported data. The study found that over half of those seeking to consolidate their debts had made a gambling transaction through their bank in the past year. Moreover, the highest-spending 5% of the debtors accounted for almost half of those transactions.
The study, Gambling among indebted individuals: an analysis of bank transaction data, by the University of Helsinki’s Centre for Research on Addition, Control, and Governance (CEAGC) found gambling and indebtedness are strongly linked, particularly among those with unsecured debt. Finnish credit counseling and consolidation service Solidate provided the researchers with data from client records collected between 2018 and 2021.
However, where previous research has focused on debt incurred by those who gamble, this study used bank data to hone in on the gambling activities of individuals seeking financial help.
According to the researchers, the results show there is a need to do more.
From the report:
Debt counselling services routinely encounter gambling-related harms and need to be equipped to manage these issues.
The Finnish Ministry of Social Affairs and Health, an Academy of Finland grant, and the University of Helsinki Faculty of Social Sciences funded the study.
Problem Gambling Long Associated with Debt
According to the study, financial issues, particularly debt, are among the most dire consequences for individuals who gamble.
Here, researchers define gambling-related debt as debt attributed to situations where people borrow money to finance their gambling. It also covers instances where losses create other forms of debt, like leaving bills unpaid, overdrawing accounts, or being in arrears on loans.
Other studies have likewise linked gambling with various forms of debt, particularly the high use of instant loans and personal credit.
Additionally, borrowing money to finance gambling is a measure in various problem gambling assessment tools. Unsurprisingly, pathological gambling and high debt are commonly associated, and more debt correlates with more severe gambling issues.
Secured debt refers to debts where the loan is backed by other assets as collateral, as in a mortgage or a car loan.
Unsecured loans, or instant loans, lack such guarantees. To compensate for the higher risk, lenders charge higher interest rates on such loans. Payday loans are a typical example of unsecured borrowing and can lead to debt spirals.
Almost 40% of Finnish Gambling Occurs Offshore
Upon registering with Solidate, clients provide access to their last 12 months of bank transactions and details of accumulated credit. Solidate then uses that data to determine eligibility for debt consolidation. Consolidation is not an option if heavy gambling or previous consolidation attempts are detected.
Notably, Finland, which currently operates a national gambling monopoly, has high national gambling participation rates. According to a 2019 Finnish population report, 78.4% of the Finns gambled in the previous year, but most played lotteries.
However, government-regulated gambling only accounted for an estimated 59% of Finland’s online market in 2021. That leaves over 40% of online play happening on unlicensed, offshore gambling sites. This is likely why the government has committed to transitioning away from the monopoly by 2026.
At the same time, unsecured loans are easily accessible in the country. Fortunately, regulation means lenders must abide by interest rate caps. During the pandemic, government policy lowered the cap to 10%. ‘Post-pandemic,’ Finland reset the limit to 20%.
Still, data from Finnish support services show that gambling with instant loans is the harm most noted by people seeking help. Debt is also the reason most gamblers decide to reach out.
Debt Consolidation Occupies Vital Frontline Position
Results of this study show gambling in Finland is widespread among the indebted. In total, 55.8% of the sample had gambling-related banking transactions the previous year.
Notably, that rate is lower than the gambling prevalence in the 2020 report (78.4%). Researchers explained this is likely because gambling can result in failed loan consolidation. The dataset’s absence of cash-based gambling would also contribute to the discrepancy.
Findings also showed that land-based electronic gambling machines (EGMs), lotteries, and scratch tickets are popular among Finnish gamblers—thirty percent of the indebted sample gambled at only land-based locations in the previous year.
However, among indebted individuals, casino-type gambling appears the most popular. Based on the population study, casino-type gambling is also popular among people experiencing gambling problems.
These results have important implications, researchers said. For one, they indicate gambling is a significant contributor to indebtedness.
While correlation is not causation, the sample’s high gambling spend suggests that indebted individuals are at risk of gambling harm. Researchers said gambling is likely the reason for significant unsecured individual debt.
From the study:
Gambling spending is highly concentrated. Nearly half (49.5%) of all gambling deposits are concentrated among the highest spending, 5% of indebted individuals. Individuals with unsecured loans have higher median losses than those without unsecured loans.
The high level of gambling among people with those unsecured loans also raises concerns about consumer credit access.
Instant loans, in particular, may be connected to excessive gambling debt, the study said.
While financial debt may partly stem from uncontrolled spending or poor money management, these commercial gambling and credit interests exploit these vulnerabilities.
As a result, said researchers, debt consolidation services could occupy a vital frontline position for addressing gambling-related harm.
Usually, professional counselors or self-help groups address gambling issues. However, financial help services regularly encounter individuals exhibiting gambling problems. Surely those firms could benefit from brief screening tools for problem gambling.
Additionally, the study suggested partnerships across service providers are necessary to treat and prevent these gambling harms. One example includes monitoring gambling-related transactions by online payment providers to identify problematic spending patterns.
More Unsecured Debt for People with High PGSI Scores
Previous evidence from the UK has shown that individuals who score high (8+) on the Problem Gambling Severity Index (PGSI) rely on unsecured loans to fund their gambling at rates far higher than those without gambling struggles.
For credit cards, the difference is 30% (38% for high scorers vs. 8% for everyone else). For other types of loans, the difference isn’t quite as vast but is just (if not more) stark:
- Overdraft: 28% vs. 1%
- Instant loans: 20% vs. 0%
- Other loans: 18% vs. 0%
But, until now, most research on the connection between gambling and debt depended on self-reported data, which can be subject to bias.
The study did note a previous UK study that used a financial dataset to gauge the relationship between gambling and general economic harms. The latter study connected gambling to housing foreclosures and higher credit card use.
Another UK-based study analyzed clients of a consumer credit counseling service. That research discovered clients flagged for gambling had considerably higher unsecured debt than those unflagged.
Similarly, the current study analyzed the gambling spending of indebted individuals who contracted a credit counseling and debt consolidation service.
However, the analysis covered the amounts and types of gambling indebted individuals partake in. Researchers also considered the amounts of secured and unsecured debt at stake.
The results, said researchers, offer multiple implications for treating and preventing gambling-related financial harm.
- Marionneau, V. Gambling among indebted individuals: an analysis of bank transaction data.
- Swanton, T. et al. (2020). Gambling-related consumer credit use, and debt problems: a brief review.
- Salonen, A. et al. (2019). Gambling and problem gambling – Finnish Gambling.