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Economic News, Data and Analysis

Stock Ownership

According to the Fed’s survey of consumer finances, stock ownership is now over 50% for the first time. (See below for the recent article on the current SCF.)
Why the increase? James Poterba looked at increased ownership between 1989 and 1998 and looked at various possible explanations.
-changes in risk aversion
-changes in transaction costs (monetary, information, increased adverstising)
-increases in product diversity
-changes in perceived risk and return
-changes in pension structure (IRA’s, 401k’s, etc.)
He concluded that “[t]he rapid growth of stock ownership during the 1990s has not been concentrated in any particular demographic or socioeconomic group, but rather reflects a broad increase in stock ownership across many different groups. The two most important sources of the growth in stock ownership, the expansion of retirement saving plans and the growth of investing in equity mutual funds, affected the middle and upper middle class more than they affected very high income households.” See The Rise of the “Equity Culture:” U.S. Stockownership Patterns, 1989-1998, by James M. Poterba.

2003 Recent Changes in U.S. Family Finances: Evidence from the 1998 and 2001 Survey of Consumer Finances, by Ana M. Aizcorbe, Arthur B. Kennickell, and Kevin B. Moore
Data from the Federal Reserve Board’s Survey of Consumer Finances show a striking pattern of growth in family income and net worth between 1998 and 2001. Inflation-adjusted incomes of families rose broadly, although growth was fastest among the group of families whose income was higher than the median. The median value of family net worth grew faster than that of income, but as with income, the growth rates of net worth were fastest for groups above the median. The years between 1998 and 2001 also saw a rise in the proportion of families that own corporate equities either directly or indirectly (such as through mutual funds or retirement accounts); by 2001 the proportion exceeded 50 percent. The growth in the value of equity holdings helped push up financial assets as a share of total family assets despite a decline in the overall stock market that began in the second half of 2000.
The level of debt carried by families rose over the period, but the expansion in equities and the increased values of principal residences and other assets were sufficient to reduce debt as a proportion of family assets. The typical share of family income devoted to debt repayment also fell over the period. For some groups, however–particularly those with relatively low levels of income and wealth–a concurrent rise in the frequency of late debt payments indicated that their ability to service their debts had deteriorated.
Full text (174 KB PDF)

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