NerdWallet's Smart Money Podcast - Budget Rehab: A Debt-Free Couple Plans for a Wedding, House and Baby (Plus: Inside Disaster Betting Markets)

Episode Date: September 10, 2026

Learn how a debt-free couple budgets for a wedding, a house and a baby, plus why disaster betting markets are booming. How much of a $20,500 monthly income could go toward a wedding, a first home and a future baby, all within the same few years? Hosts Sean Pyles, CFP®, and Elizabeth Ayoola sit down with a debt-free military couple, Jack and Lauren, to dig into their budget and figure out where their savings could be prioritized. You'll hear how the couple built their monthly numbers, how their retirement contributions stack up years down the road, and where spending on subscriptions, transportation and eating out is quietly adding up. Would you bet money on whether a hurricane makes landfall, or an earthquake strikes? Senior news writer Anna Helhoski explains how prediction markets on platforms like Kalshi and Polymarket have turned natural disasters into tradable contracts worth hundreds of thousands of dollars, and why some researchers argue the practice is pricing catastrophe like just another guessing game. Enter for a chance to win a $250 Amazon gift card — and help us improve our show — by taking our listener survey! Find the survey and official sweepstakes rules here: https://docs.google.com/forms/d/e/1FAIpQLSettbeI0yDf8tLt_Q772StVJoWs_Gm-pWa-gSn2fdWEc0XcOw/viewform?usp=sharing&ouid=102666646608198254961  Are you on track to save enough for retirement? Use NerdWallet’s free retirement calculator to check your progress, see how much retirement income you'll have and estimate how much more you should save: https://www.nerdwallet.com/investing/calculators/retirement-calculator  Want us to review your budget? Fill out this form — completely anonymously if you want — and we might feature your budget in a future segment! https://docs.google.com/forms/d/e/1FAIpQLScK53yAufsc4v5UpghhVfxtk2MoyooHzlSIRBnRxUPl3hKBig/viewform?usp=header The Business of Betting on Natural Disasters: https://www.nerdwallet.com/finance/news/natural-disaster-prediction-markets  Subscribe to our podcast’s free email newsletter for bonus content and more from our hosts at https://smartmoney-nerdwallet.beehiiv.com/  Smart Money’s YouTube Channel: https://youtube.com/@nerdwalletsmartmoney To send the Nerds your money questions, call or text the Nerd hotline at 901-730-6373 or email [e-mail]. Like what you hear? Please leave us a review and tell a friend. *The show notes were created with the assistance of AI. They have been reviewed by our editorial team for accuracy and quality. Learn more about your ad choices. Visit megaphone.fm/adchoices

Today's episode is brought to you by Vinted. Sean, do you have clothes in your trunk that you've worn but have no idea what to do with? You know what? I do not because my car is super clean right now. But I'm betting that you do, Elizabeth. I sure do, Sean, unfortunately. And I've been wondering what to do with these clothes. And then I found out about Vinted. So they're like this secondhand marketplace app and their mission is to make secondhand your first choice. Yeah, Vinted helps their members find great deals and easily. sell the clothes they no longer wear, and that helps give quality items a second life again and again. And it helps the planet, too, and we care about the planet, don't we, Sean? We do. Well, Elizabeth,

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no seller fees. This couple brings in over $20,000 a month, has zero debt, and expensive medium-term goals. Today, we dissect their budget to see how we can help them, their goals of getting married, planning for kids, and buying a house. Welcome to Nerd Wallet's Smart Money Podcast, where you send us your money questions, and we answer them with the help of our genius nerds. I'm Sean Piles. And I'm Elizabeth Ayola. One of you, yes, I'm going to say your name, Hana called us out and said that we haven't

done a budget rehab in a while, so guess what? We have one for you today. And be sure to stay with us later on the show because we have the latest money news coming today. Jack and Lauren are here today to talk through their budget and financial goals live. Jack, Lauren, welcome to smart money. Hey, thanks for having us. Before we jump in to your budget, Jack and Lauren and getting to know you,

for anyone out there listening or watching who's unfamiliar with budget rehab, we essentially go through your budget and see how we can improve it to help you achieve whatever your financial goals are. So if you would like to come on, like Jack and Lauren and have your budget rehabbed, We have a form that you can fill out in the episode description. So Jack and Lauren, I want to hear a little bit more about your life. I heard that you guys just moved from Japan to Washington, D.C. What was living in Japan like?

I'm a huge fan of the country. So we were in Japan for about a year and a half, both active duty naval officers. So 18 months, but we also spent a lot of that out at sea. But we definitely capitalized as much as we could. We were in Japan. We did a lot of traveling. We ate a lot of food. We ate a lot of food.

The best food. Yes, the best food. And since being in D.C., there's good food here too, but we are missing our time in Japan a lot. Yeah, the price point for really good food is a little different in Japan than in D.C. It's so cheap to get just the freshest sushi in Japan. We miss walking into a 7-Eleven and having it feel like a small whole foods at a quarter of the coast every day. Wow. I have a question for you guys.

Tell us a little bit about your relationship. So you're together. How long have you been together? Tell us about that. Early 2024 is when we went on our first date. Am I right? Is that right? Yeah, 24.

Yeah, that's right. I knew that. And then we spent about a good part of a year in San Diego doing Navy schools that we had to do. And then both of our ships were out in Japan. So moved out to Japan together. We had a lovely little house. We had a lovely little Japanese car that we drove around. Like Lauren said, most of the time in Japan, one of us was out on the ocean.

And the other one would be in port. And we got married when we were out there. So we are a little over one year married at this point. But like I'm sure we'll talk about later, we didn't throw our wedding party yet because we were in Japan where most of our family was not. Right. And how old are you guys? I am 29. I'm 27. Got it.

Okay. So you're still in some like early earning and career years. But you're beginning to establish your lives together, put down some roots. And what are you doing in D.C. workwise? We're both still active duty. So I'm working as an Admiral Aid here in Navy Yard. And then Jack is working at Navy Yard as well, just at a different office down the street. We both have about three years left in the Navy if we want to.

We did just both hit our minimum service length. I think this year. Yeah, this year we hit that. So that's another conversation we're having because at any point right now, we could technically drop papers and enter the civilian worlds. But that would change a lot of things financially for us. What would be the biggest shift if you did that? I don't know if a lot of people know this about military benefits and pay.

So, I mean, there's the obvious the health care is very nice in the military. You're not paying any health care costs at all. And then you do have a decent amount of income that is non-taxed. So you get a housing allowance. You get a smaller food allowance. You're getting money on the side that is a sizable portion of your income that is not taxed. So we fall into a lower tax bracket than what we actually earn. So that's a major benefit.

Yeah. I would love to get a portion of my money that was intact. Well, guys, how are you managing your finances as a couple before we go into your budget? Building up from various budget pages that we've seen before, including the one that we worked on and sent to you guys. So we're at a point now where using some kind of like fancy AI software coding because we don't know how to do that ourselves. Created a budget that pretty accurately reflects are necessary payments that we have to make every month, the wants that we, you know, the fun stuff that you enjoy about life. And we're pretty big on savings and investing and making sure that all gets tracked as well. So we're pretty scientific about it, I think.

We're definitely better than what we were like a year ago in Japan just having fun all the time. But that's probably just part of growing up. I imagine it's also partly out of necessity since D.C. is so much more expensive. Yes, D.C. is a lot more expensive. And then like you mentioned earlier, over this next year, we probably have a wedding party in October, which is small wedding party, but in D.C. so financially large. Not inexpensive. How much are you planning to spend on that? I think it's close to $25,000 to $30,000. That's still a fair amount for a wedding. It's a pretty reasonable celebration.

My wedding was about in that range, too. So good job keeping it affordable. Lauren and Jack, let's get into some specifics here. You filled out our budget spreadsheet, which we're sharing on the video and folks should check out on YouTube if they aren't watching us. And I see here that you're bringing in about $20,500 a month, which is a great number. How does that feel for you income-wise? I mean, it feels pretty comfortable for the most part. It's a big shift from Japan. Benefits change a lot when you go from overseas to back to the States.

So that number in Japan was probably closer to about 13 or 14,000. And then it gets hiked up when you take into account the higher cost of living and you get additional housing benefits. So it's a bigger number than what we're used to, certainly. But there are so many additional costs with coming back home that it kind of led to some initial nervousness of, hey, we might get more in, but we might be putting a lot more out. And on an annual basis, you're earning just under $250,000. But it's very telling about DC that that still feels a little tight sometimes. Well, let's go into your needs. Speaking of things, feeling tight.

So here you are spending $5,400 on housing. Tell us about that are you renting? Do you own your home? So we're renting. And that's a conversation we had coming back to the states because there's always the dream of owning. But renting definitely made a lot more sense when we got here. So we're in about, I think it's a year lease.

And we're talking about probably renting for at least the next couple of years before having that purchasing or owning conversation again. And then how many rooms is that out of curiosity? So we're in a townhouse in D.C. and we're right in Navy Yard. And we did that because we're walking to work, which is all. awesome. So no car payments. I'm sure we'll get to that later. But our townhouse is three bedrooms, which is really awesome because probably also talking about later, but family expansion in the near future. So the townhouse is definitely a good spot for the foreseeable future. Looking here,

you guys seem to spend a reasonable amount on food. So $600 a month. The average for a single adult is $340. So you guys are in a good range here. What is this $300 in transportation cost since you all are not using a car. Some of these costs, I think if I ran back through, I would have to inflate some of these numbers. The little budgeting application we made, we have a feature where we tossed our credit card information on it for one month to see what we were actually doing. I thought that was eye opening. A sobering moment to be sure. So actually our food costs for groceries probably went up to closer to like $700-8-ish, $800. The transportation costs, that's primarily Uber. So we didn't think we were going to be Ubering very much. D.C. has an awesome metro system, but we had enough things popping

up that were far enough away from metros or a little outside of the DMV that we looked at doing public transportation and it would, you know, add an hour and a half, two hours to the trip. So we thought, okay, like it's 20 bucks, it's 30 bucks. But, you know, that piles up. Definitely. Uber's can get very expensive, but the convenience factor is hard to deny, especially if the weather is not so nice. Looking elsewhere at your needs category, under the ongoing contractual obligations as things like subscriptions. It's about $300 a month. What are you paying for there? I think our gym payment is in that one. Is that right? One of the things that we love to do is we have a really nice gym, and that is definitely a fee we pay every month. And then I think along with that is

just streaming services, the HBO, the Netflix, all of those prices are going to go up every three months. I have to ask, do you use all of them? How many do you have and do you use all of them? We pay for at least two of them. And then I think he is a sibling and we're doing a little bit of that. Sharing, sharing. I think we do an okay job at that. Actually, something that we have to look into is we do have an Amex. And I know that people talk about the benefits that that card can provide you.

And that is something I really need to look at. That can really help offset the annual fee on an Amex card. So, yeah, I encourage you to look into that. A question about your gym, how much? is that monthly. So it's between the two memberships combined, it's about $2.20 a month. Jims are a category where sometimes a want can become a need because you get locked into a contract there. But if you guys use it regularly, it can really pay for itself just in being healthy. And it seems like it brings you guys a lot of joy and fulfillment. So I'm happy with that.

But I do want people to always be aware that there are certain areas where something that seems like a discretionary expense can become a necessity if you are locked into maybe a 12-year contract with them, or a 12-month contract, rather, 12-year-old be extreme for a gym. Well, before we move on to savings, I want to ask you guys, is there anything in your needs that you feel is too high or that you would like to knock down aside from the subscriptions? I don't really think so. The utilities payment has gone up as it's gotten hotter in D.C. I think when I first submitted this, we weren't really concerned with air conditioning because it was a little nicer outside. But, I mean, we're definitely paying more on our electricity bill

and our gas bill. But none of that has approached the point where it's like, hey, we need to sit down and really talk about 70 or 72 degrees type thing. Let's move on to savings. How much do you guys already have saved for retirement? And also in an emergency fund. So I'll start with the emergency fund. We currently have a CD with Navy Federal Credit Union that has about $62,000 hanging out in it. We're transitioning that into an American Express high-ield savings account because the rate's pretty similar. It's a 3.5 versus a 3% for Amex, but it's a lot more liquid. We can move that money around faster. We'll have access to it. We're treating that not only as an emergency fund, but also, hey, when we decided to get a car, because we're going to have to at some point,

we want to pay a sizable portion of that car off right away, and that'll probably come from that pot of money. And is that your sole savings account? Or do you have savings buckets, sinking funds, as we have to talk about? For the most part, it's all in the CD. We did, open the high yield savings and that has 15 in it right now. So between the two, I guess it's like 75 and I think that's the majority of the savings. I don't think there's anything else. And then about your retirement savings, how much do you have saved between the two of you? Between our Navy-based, which is called a TSP and our Fidelity-based accounts, it's around 350,000. Okay. And the Fidelity accounts, is that a taxable brokerage or is that a retirement account? I've got a Roth IRA and a brokerage,

a taxable brokerage. Just for retirement, which includes the Navy's size. I'd end the Roth probably 200,000. All right. Now, let's look at you guys' retirement savings. Right now, you're saving just over $3,000 a month into a retirement account. Which account is that going into? That is split between our Navy TSP's, and then I just took the monthly average of the $7,000 Roth payment.

Okay. And then where is this $800 a month going? That is the CD, soon-to-be high-old savings account. All right. And then this one is self-explanatory. $1,900 going into a taxable brokerage account. Is that correct? That is correct. And then how did you guys come up with the number that you're saving for retirement?

How did you decide that you're going to put aside this amount every single month? You know, I don't think there was ever all that much intentional thought that went into this. Growing up, my parents sat me down and had the conversation, hey, it's good to save money. And before we started dating and we're both single in the States making decent officer pay, I kind of just had more money than I needed. And I knew I needed to do something with So I started just making the monthly contributions really without too much thought until hearing some of your guys's past podcasts when I thought, okay, maybe like the 20 to 30% range is where I should be hanging out because I have the means to do so right now. You're doing pretty good in terms of your saving rate depending on the benchmark. But of course, we know how much you should be saving is dependent on what your retirement goals are and how much you need in order to retire.

Okay, so we're going to move on to your debt payments. That's not going to take long because y'all ain't got no debt. Congratulations. Sean, do you want to do the honors of telling them their score? So we usually measure across the 50, 30, 20 for those listening and watching. So for those who are new to the 50, 30, 20 kind of benchmark that we use a framework, 50% of your income should go to your needs, 30% to your wants, and 20% to debt and savings. And the goal of this framework is to have balance in your budget.

And sometimes your needs score might be closer to 60 if you're an expensive area. but sometimes it actually might be lower. Like, Lauren, with you and Jack, your must-have score, your need score is actually closer to 33%, which is great. It means that you're having a pretty affordable way of living just based on what you're putting in for your groceries and your housing. So I love to see that. And your saving score is also a little bit below average, technically, at 28%. You know, usually that's around 30%, but still because you don't have any debt, that's still a really solid number. you're putting a lot away. And your want score is closer to 38%. So a little on the higher end.

And when you wrote to us initially, you'd mentioned that you were concerned about not having enough money to enjoy your day-to-day life and maybe have some of those wants expenses. How are you feeling about this category of your spending based on what you're seeing here and what you might want to do with your wants money? One of our questions definitely was about how much we're saving versus how much we're using day to day, especially because this first year, it was moving into the townhouse and there was a little bit of furnishing that came with that. It's the wedding party this fall. It's the possibility of maybe needing a car here in six to eight months.

And then a couple travel trips. And then maybe a kid in the next year or two. Okay. Is there a lot of goals? A lot of goals in the next maybe 48 months, maybe less, 36 months. Yeah. I think part of our wants started a blending into the needs when we started getting used to lifestyle back in America

and like how much realistically is it going to cost for you to go out with your friends two times a week? What if it's three times a week? How often do you feel lazy and you order food in? One of the first times that we did a, hey, we've been here for a couple months now. Maybe we've established a bit of a more consistent routine. What does our spending actually look like?

And we came to a situation we were really going, okay, maybe we're going a little crazy. Maybe even with that cushion, maybe we're at a point where we have found the cushion's edge, and it might be a good idea to kind of rein it in a little bit. I think that might be a fair conclusion based on your want score being 38% and your various savings goals. We talk about syncing funds a lot on smart money because of how helpful it is as a strategy to make progress on multiple savings goals at once. So as you begin to put money into your new high-old savings account, I would encourage you to look into maybe having

three or four based on these different goals that you've just laid out, kind of backing yourself into them thinking, okay, if we do want to buy a car in 10 months time, what kind of down payment do we want so we can feel comfortable with a monthly payment? And then you can begin to allocate specific money just for that. And same with having a kid and maybe even a vacation fund. This will help you stay organized instead of just having a general pool of money to pull from. And also get really clear on what your emergency fund number should be too. Have you guys looked into that, whether it's going to be three or six months of expenses for you?

I think when I first started putting money into it, the idea was probably like six to eight-ish months. And then considering you all would like to have a child sometime in the medium-term future, I think, you know, especially when you have kids having six months to a year, an emergency fund can be extremely helpful. So in other words, the more, the merrier. I also want to say, based on our conversation, I think it might be really helpful kind of echoing what Sean said to have a number for each of those buckets that you're working towards. So, you know, for the car fund, we need to save 50 grand. For the travel fund, it needs to be 20 grand. And then you can kind of reverse engineer and save. And let me tell you, that's also going to reel you in when you are doing YOLO and trying

to have five nights out a week and just overspending because you're going to remember, hey, you're going to look at those different savings buckets and say, hey, we're not at our goal yet. And that money could go towards that. But crucially, you two are maybe thinking about pulling back on your retirement savings to help make your day-to-day life a little more comfortable and also make progress on these other savings goals. Talk us through your thinking there. That was so what Lauren kind of brought up earlier, the litany of major expenses coming up. We crunched the numbers on what that would look like. And I think the big part of that is it's very concentrated. We're looking at,

you know, an eight month span where there's going to be serious costs that are hopefully just one-time costs, but are sizable. And we are thinking, okay, this wipes out the high-yield savings pretty quick. We don't want to tack up a whole lot of high interest debt knocking any of these payments off. So where might that extra money have to come from? And so then we were talking, hey, we're doing pretty well with our saving goals right now with a couple our age. If we do have to make a sacrifice somewhere, do you want to sacrifice some of the short-term fund while we're still in our late 20s, early 30s? Childless. Oh, please say that again. When they eat your money.

You know, versus when a kid is in the picture and a lot of those kind of yolo activities, they're kind of in the past at that point. So trying to find a way to maximize any amount of fun without doing something radically out there that might actually damage your long-term earnings and an investment account and retirement account. I think that makes a lot of sense, especially on a short-term basis. I mean, as a financial planner, although not your financial planner, I'm always loads to see people pull back from retirement savings entirely, especially since you guys are pretty young and you really do.

have time on your side here. But numbers can be really helpful just to make this a little bit more concrete. So I put your information into Nerdwollage Retirement Calculator, and based on your income and your current retirement savings, if you contributed not a dollar more to your retirement accounts, by the age of 67, you would have about $1.8 million saved. Although based on your current expenses and your income, you would need about 7.8 saved. So a bit of a gap there. However, if you continue to save the amount you're saving now, you would have about $8.3 million saved. So you would have more than you need. An eight-month gap of not saving anything, that's just going to be a short-term pause.

And I don't think it would totally derail your retirement savings. I would encourage you to think about balancing savings sum for retirement still while putting money into other retirement accounts. So it's not completely all or nothing. But yet, you're still on a good path. based on your age, you guys are doing great in terms of retirement savings. So in other words, we give you permission to live a little. Of course, you don't need our permission.

We're just kidding. Now on to the last thing you guys wanted to cover for your budget, which was preparing to have a child. Talk to us about that. How are you trying to fit that into your current budget? The biggest thing we've been looking into is we have the health care benefits right now. We see the scary numbers about having a kid outside of TRICARE. So that's something that we're using a lot in our family planning. Wait, what is TRICARE? Can you explain that?

TriCare is the military health care that we're afforded. It's immediately included in our salary. So we don't see a number being taken away every month, which is a nice feeling. Hopefully, having a kid in the next couple years, if at least one of us is still active duty, I don't want to say it's free, but. It's very close. You're looking at like a copay and maybe $30 for having a child. Not bad. Huge benefit.

of staying in a little bit longer. And what about child care longer term? Is there daycare included? Not exactly. They did change some things the last couple of years where they have 12 weeks for each of us that is paid parental leave, which is really awesome. It doesn't have to happen at the same time so we can stagger that, which gives us a little bit of time where we shouldn't need daycare.

However, after those 12 weeks, we've started looking into what D.C. infant, toddler, preschool-age daycare looks like, and those aren't pretty numbers. We do have the added benefit of D.C. has a large military posture. So you've got a lot of bases. And a lot of these bases, it's understood that a lot of people have families. And so there are child care centers on a number of those bases. As you can imagine, they're usually long wait times to try and get a kid in there. But they do subsidize it. It's not free. You're still paying some money. But the average cost of child care in D.C. for like quality child care is like $24, $2,500. If you can get that through the military, it's a significant chunk.

reduced. There are certainly still ways to reduce it, but I mean, it's still real money. Even if you get that, you know, the child care cost alone with that benefit, you're probably still paying $1,500 a month. I appreciate that you guys are doing research and thinking ahead because I did not. I was like, oh, I'm pregnant. Wow. And then the chaos began. So there are so many things that I wish that I did ahead of time. One of them is started saving for college earlier. I was just playing around with a calculator to see if I'm on track for saving enough for my son's college education. And And to be quite honest, not really, you know, but he still is going to have a good chunk of money for me to give to him and I'll continue to increase the contributions as I go along.

Something else I wish that I did was open an Uttma or UGMA account for him earlier during the pandemic when some of us got that stimulus check. I opened an account for him and put that in there and it's more than doubled now. So that's just to remind you guys the importance of saving early. And I remember back in the day when I was single and childless, I was talking to this guy who was trying to date me. And I remember him going, oh, I already have a savings account for my future kids. And I was like, what?

Who are you an angel? So yes. Just an example of how good it can be to start saving now. And in terms of how much, it's hard to say how much you should save towards having a kid. But I think, as Sean said earlier, having no sinking funds, it's not too early to start a sinking fund for child care. A sinking fund for anything for your kid, even just regular baby expenses, everyday expenses. Heck, you guys may need date nights. Do a date night sinking fund.

Whatever. But it's just not too early to start saving. Elizabeth, I got a question. So when you started saving money for your child's college, are you using a 529 for that or are you doing something else? I am using a 529. And I was lucky for anyone listening out there, my son is on the spectrum.

So look out there for grants. I somehow came across grants in a mom group. And luckily, I don't know how I missed that I received the grant. I found out almost a year later when they were like, hey, if you don't spend this money, we're going to get rid of it. And I was like, wait, what money? but I was able actually to put the money into a 529 account for him to jumpstart his college savings. That's just a little side note for anyone listening.

But yeah, I put it in a 529 account. I look for the account with the lowest fees, so it's not actually in my state. So you don't also have to open a 529 in a state that you live in. Let's say your child decides either doesn't want to go to school or they decide they're going to get an RATC scholarship and you're going to get it all for free. What happens for the 529 funds? Well, it depends, but thanks to the Secure Act 2.0, some of those funds may be able to be rolled into a Roth account. And not all of them, there's a limit to how much you can roll in. But that's actually what sold me also on opening the 529 because I worried about that too.

What if my kid doesn't go to college? What happens to all the money? And it can also be given sometimes if you have another child, it can be given to another child or a family member. So there are other things that can be done with the funds if your child doesn't go down the path that you think they will. And 529 funds can also be used for trade schools too, which is a great advantage. You have a decent amount of flexibility with these accounts. Okay. Well, we have covered so many things during this episode.

What do you guys think you're going to do next? Maybe what are your next top one or two things or changes you're going to make? I like the idea of kind of the specialized saving accounts. So knowing, hey, this is the car account. This is the travel account. We're pretty good normally about setting goals together and knowing how to execute those goals. but we haven't done it for those things yet. We just kind of have the big pot,

and we're like, the big pot will figure it out. So we all rely on the big pot until life gets a little more complicated and we need to get a little more specific intact. Well, thank you both so much for being so open with your finances. We really hope this is helpful for you guys and we appreciate your time. Also, we always want to hear what you guys do afterwards. So please keep us posted on any and all big life things that you guys do together. Of course.

Yeah, thanks for having us, guys. And have fun at the wedding party, send us picks. Thank you. Yes. We will. Very exciting. Up next, this week's money news where we explore how lucrative it can be to try predicting the unpredictable natural disasters.

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Visit rula.com slash smart money to get started. Again, that's R-U-L-A dot com slash smart money. You deserve mental health care that works with you, not against your budget. Time now for our weekly Money News Roundup, where we break down the latest in the world of finance to healthy people. be smarter with your money. Today we're talking about a corner of the prediction market world. People betting on weather and natural disasters. Say what? Our news colleague, Anna Hill Hoski, is here with some research on these markets. Ana, talk to us about this. Why are we betting on the weather? A quick primer on prediction markets before we get into the natural disaster

contract specifically. A prediction market's basically a market where people buy and sell contracts based on whether a future event is going to happen. You can bet on whether the Fed's going to cut rates at its next meeting, who wins the World Series, or whether a certain kind of natural disaster is going to occur. Okay, so how does that actually work price-wise? The price of the contract is basically a probability. So if a contract trades at 30 cents, the market is saying there's roughly a 30% chance that an event could happen. And that price will move in real time. So people are buying and selling based on whatever information that they think is relevant. And that can affect the price. So you've got a bunch of people with different information, different opinions, different incentives,

that are all being priced into one market. Now, the theory here is that the price becomes a kind of real-time forecast of what those people collectively think could be coming. What kind of things are people betting on Anna? It really runs the gamut. So you've got things like how many major hurricanes will make landfall in the U.S. this year. How many tornadoes there will be in any given month or how many major earthquakes or volcanic eruptions will happen in a year?

As of this recording, Kalshi has more than 100 active weather markets and polymarket has close to 500. So what do proponents say these markets can tell us because they're not exactly the weatherman, right? Proponents say they aggregate information really quickly and that's a benefit. So if people have money on the line, they've got an incentive to do their homework and bring whatever that they know into that market. So the price becomes this real-time probability estimate. And in theory, it can update faster than a traditional forecast. I talked to Robin Hansen, an economist at George Mason, and he made the calibration argument. Basically, if a market says something has a 70% chance of happening, then you want that event to actually happen about seven times out of 10.

Well, what do the critics say, Anna? What are the opposition saying? Critics say that these markets can create a false sense of precision. Now, back to that 30 cent example that I had earlier, it can look like we know there's exactly a 30% chance of something happening. But that number isn't necessarily coming from experts or a scientific model. We don't know who it's coming from, except that they use a prediction market. Now, with something as chaotic as a natural disaster, there's only so much information that any of them actually have. Jamie Petruska, a historian at Rutgers, put it pretty bluntly to me that it's, quote, not a truth machine.

It's just aggregating public opinion, and it's really not clear how informed that these traders actually are. Okay, so what does this actually look like when you have real money on the line? One of the weirder ones happened in Paris in April. There were two separate contracts that were tied to temperatures recorded at Charles de Gaul Airport, which Pollymarket uses to gauge temperature readings for those markets. Now, two unusual readings led to some pretty wild payouts. In one case, someone reportedly turned a $119 bet into more than $20,000 because they correctly called an unusual temperature spike. Huh. Okay. And there was actually an investigation into those readings, right? The readings were pretty suspect, and they were so unusual that French authorities looked into whether the sensor had been tampered with in some way.

And Polymarket, as a result, eventually dropped that sensor and switched to another airport nearby. But it gets at one of the biggest questions around these markets. Once you put money on an event happening, can you create an incentive for someone to actually influence the outcome? Well, Anna, temperature readings are one thing, but natural disasters, to me, seem pretty out of people's control. Well, mostly Elizabeth. Now, take a wildfire, for example. Imagine there's a contract on the possibility of a wildfire in, let's say, San Diego County. In theory, somebody could start a fire and profit off the income. Now, last year, Polymarket actually ran contracts tied to the 2025 LA fires with more than $1.2 million wagered across these markets. There was a lot of public pushback from those contracts, and neither Polymarket or Calci now offer wildfire markets. But if they wanted to, they could because the CFTC hasn't specifically banned them. So I do see how there's a bit of a perverse incentive to maybe start a wildfire if you are so inclined. But how likely is that in practice because arson seems like a pretty extreme jump? It is extreme. And that was actually one of

my sources points. So Robin Hansen compared it to the stock market question of whether someone would sabotage a company that they'd shorted to make money. Now, people have worried about that kind thing for ages and his argument is that it almost never happens. However, there is evidence that people can gain an advantage in these prediction markets. Having information other people don't have. Now, in April, the Justice Department charged a U.S. Army Special Forces master sergeant with using classified information about the capture of Venezuelan President Nicholas Maduro to make more than $400,000 on polymarket. Well, Anna, now I'm wondering whether there are any hard boundaries that these platforms can't cross. Like, for example, could you bet on a death toll? No. Both Kalshi and

Polymarket explicitly don't allow contracts that bet directly on loss of life. So you can't bet on whether an earthquake kills more than 500 people, for example. But there's still quite a big ick factor to all of this, at least for me, it seems like there's a really big lack of empathy. Betting on a hurricane feels different than betting on a World Cup. And I'm thinking here, too, about a new story I heard recently about how you can bet on whether or something. It's a lot of pharmaceutical trials will succeed or fail. And that is essentially, could be, betting on whether someone will live or die based on an illness they have. Sure. And that's basically the ethical crux here, right. Now, Petruska, who's writing a book on natural disaster betting, said it feels,

quote, ghoulish to bet on catastrophic natural hazards where people are going to lose their lives and property. On the same dashboard where you're going to bet on whether Taylor Swift drops her next album. And she referred to it as, and I think quite appropriately, as, the casualization of catastrophe. Yeah, ghoulish is a great word for this. Yeah, it does feel that way. Now, a Kalshi spokesperson I talked to pushed back on that framing. His view is that these markets are valuable because they aggregate information,

not because they're replacing traditional forecasts. And he did make an interesting distinction on the wildfire question we were talking about earlier. He said there's not much informational difference between wildfires and hurricanes, but there is one big difference. A human can't start a hurricane, but a human can start a wildfire. But that's still why Cali doesn't list wildfire contracts. So, Anna, where is this all heading? Is it a niche thing or is it going to get bigger?

What are your thoughts? For perspective, both platforms are still dominated by sports betting. So disaster and weather markets are just such a small slice. But there are signs that they're growing. I'd also found that an investment firm, Morton Capital Partners, is hiring analysts to build prediction market trading models across a whole bunch of different categories, including environmental events. and that suggests that institutional investors are starting to take these markets more seriously.

There's a structural wrinkle here, too, that I want to point out. Calshe makes money on transaction fees. So the more the people trade, the more the platform is going to make. And Petruska said that it creates an incentive to add more disaster-related markets over time. And she referred to that as disaster capitalism. At the end of the day, Anna, how much weight should people actually put on these markets with all things that you've mentioned? They can give you a sense of how people are pricing a particular risk, but that number isn't necessarily the truth. And when you're talking about something like a natural disaster, you wouldn't want to rely on it alone when making a decision about your own safety, for example. Well, Anna, thank you for breaking this all down for us.

Yeah, you got it. And that's all we've got for this episode. Remember folks that our job as nerds is to answer your money questions. So keep them coming our way. You can leave us a voicemail or text us on the nerd hotline at 901-730-6373. It's 901 730 Nerd. You can also email us at podcast at nerdwale.com or drop a comment on Spotify or YouTube.

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We're on YouTube. Here's our brief disclaimer. We are not your financial or investment or prediction market advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances. Some companies mentioned in this episode may be a nerd-walt partners, but does not influence how we talk about them. And with that said, until next time, turn to the nerds.