When The Stock Market Rises, Who Benefits?

from the St Louis Fed

— this post authored by Lowell Ricketts

The recent stock market volatility has generated a lot of discussion. Many Americans grapple with what it exactly means for the broader economy as well as its impact on their household balance sheets.

Surprisingly, though, only around 50 percent of American families have anyexposure (direct or indirect) to the stock market. In fact, stock market wealth is heavily concentrated, with the wealthiest 10 percent of households owning around 83 percent in 2016.1 Consequently, the risk – and rewards – associated with the stock market don’t accrue to many Americans. As a matter of fact, we discussed this in a recent New York Times article on the recent market gyrations.

Demographics of Stock Market Participants

Within the Center for Household Financial Stability, we believe that demographic factors – age, race/ethnicity and education – are meaningful dimensions by which to study household balance sheets. While families can see their position in the income and wealth distribution change year-to-year, these demographic factors remain stable.

So how are stocks distributed across American families using a demographic lens? The differences are arguably more striking.

Examining Middle-Aged Families

Using the Survey of Consumer Finances (SCF), I looked specifically at families headed by someone between the ages of 40 and 61. I focused on this group for two main reasons:

Younger families haven’t had much time to accumulate assets.

Older families preparing for retirement tend to transition their portfolio to assets that are less risky than stocks.

Therefore, I expect middle-aged families to have the greatest capability and desire to invest in stocks.

Examining Participation by Race and Education

The figure below shows ownership rates of any stocks in 2016 for groups defined by race and ethnicity2 as well as education, measured by whether the head of the household had a four-year degree.