Managing my money
Managing my money

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Managing my money

1.2.1 Betting the house

Most of us like to have a gamble once in a while – even if it’s just buying a lottery ticket or backing a horse in the Grand National. How big is your appetite for risk taking? How much are you prepared to lose on a bet – £5? £20? £100? Maybe even £1000? Ashley Revell was prepared to take on a huge gamble. Was it bravery or madness?

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Transcript

Martin Upton
Some people are BIG risk takers. Take Ashley Revell from Kent. In 2004, Ashley entered the Plaza Hotel and Casino in Las Vegas with only one thing on his mind: taking a big gamble! He'd raised thousands of pounds and he was now ready to put it all on the line - a total of 76,840 pounds' worth to be precise!
He contemplated a roulette wheel. Whether he chose to place his two piles of chips on red or on black would mean the difference between loosing it all and gaining thousands more. He had a 50/50 chance of winning or losing... but he felt lucky. He chose red at the very last minute... and that's where the ball settled.
On a whim, in one moment, he'd doubled his money to 153,680 pounds! But he could just as easily have lost it all. Would you be able to take such a gamble? Would you describe yourself as a risk taker? Or are you risk averse?
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Activity 1

Would you say you’re risk averse? Or are you a risk taker?

What factors or changes to your circumstances might affect your answer?

Go to the fact find and log your appetite for risk in relation to your three goals.

Discussion

The video on ‘betting the house’ depicts an extreme, high-risk and, in truth, reckless way of managing money and making financial decisions.

The reality with financial decisions is that there are many shades of risk taking between being completely risk-averse to being prepared to take on higher risks that can deliver higher returns. In fact some decisions that may seem risk-averse, like leaving savings in an instant access account offering a low, but guaranteed, return expose you to the risk that the balance of your savings may grow more slowly than the rate of price inflation, thereby reducing, over time, the value of goods your savings can buy.

We’ll learn more about how inflation impacts our personal finances in the second week of the course. Later we’ll look at the historical evidence about the correlation between risk taking and returns.

The picture you’ll get by the end of the course is that working out what risks are worth taking is more complex than, at one extreme, deciding to put your life’s savings on a single bet at a casino or, at the other extreme, just leaving your saved money in your bank account.

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