WP4
Owen Wendell-Braly
Professor Dochterman
WRIT-150
Due: 11/29/2021
In this essay, I will analyze how emerging personal finance technologies (or FinTechs) — tools that democratize access to investments and financial services — are impacting the financial health and well being of low and middle income families in the United States. Specifically, I will evaluate the experience of USC students in these demographics who have utilized such tools. More broadly, I will compare the current state of financial equity of the US to that of other countries.
America is the wealthiest country in the world, yet the gap between the top and the bottom — the “haves” and the “have-nots” — is enormous, and it’s getting worse. Since the housing crash of 2008, 95% of economic gains following the economic recovery have gone to the top 1% of Americans (by net worth). As of 2014, multiple credible sources reported that the wealthiest 1% of Americans possess roughly 40% of the nation’s wealth while the bottom 80% own just 7%. The gap between the wealth of the top 10% and that of the middle class is over 1,000% and that number increases yet another 1,000% for the top 1%. To put this into real life context, the average employee at any given company in America needs to work more than a month to earn what their CEO earns in an hour. A substantial factor contributing to this divide is a disparity in stock market participation. Over the past three decades, Federal Reserve data shows that the gap in wealth between the top 10% of society and the bottom 90% is in large part due to the levels of corporate stock ownership. While the wealthiest 10% own sizable portions of corporate stock, the bottom 50% of America owns barely any at all.
One result of this imbalance is that Americans are the unhappiest they have ever been (WHR), and if nothing is done to address this growing economic divide, we can expect more of the same in the future: poorer, unhappier people.
One potential solution to this problem is to broaden the horizons of the stock market — to allow everyday Amercians the opportunity to partake in the system that has made the wealthiest so rich — and in a way, has prohibited the poor from joining in. While some say the stock market is too risky, I argue that democratizing access to investments and financial services will raise the financial health and well being of low and middle income families in the United States and as a result, reduce some of the economic disparities we see in America today — creating a happier, healthier society.
Since its inception, investing in the stock market has been a highly privatized practice — not easily accessible to the average American and left primarily to high income individuals and those on Wall Street i.e. professionals. In recent years, however, investing in stocks has become increasingly easy and accessible. Emerging personal finance companies such as Robinhood, Weeble, Acorns and the like have allowed what was once a relatively closed industry to become a globalized marketplace where the everyday citizen — or as Wall Street calls them, “retail investors” — can partake in the system regardless of their income, location, or race.
A US World Report article states that “Stock ownership is highly affected by race and ethnicity, which also are highly correlated to income and wealth. Some 61% of white, non-Hispanic families owned stocks in 2019, only 34% of Blacks and 24% of Hispanics did. Measured by value, 24% of white, non-Hispanic family assets were in stocks, compared to 13% for Blacks and 10% for Hispanics.” This These figures reflect 401K plans as well. Statistics such as these show us that while the economy is trending upwards, and while the market may be booming — for lack of a better word — in reality, only a small portion of citizens are holding on for the ride while the rest of America are merely bystanders. But if the statistics were reversed and a majority of citizens had a stake in our financial markets, the result would be that when our industries boom, more of our citizens would reap rewards.
The globalization of financial technologies such as Robinhood, Weeble, Acorns and the like are making this possible by allowing everyday citizens to be able to partake in our financial markets in a truly accessible way for the first time. by breaking barriers which once kept so many people out of our financial systems. “Most online brokerages used to require minimum deposits of $5,000 or $1,000 to open an account. Only a couple went below $1,000 or eliminated the minimum altogether. Today, no or low minimum has become the norm. You can literally open an investment account with $1.00” (Pendola, 1). While there were once bars set on minimum investments of at least 1–5 thousand dollars none of these practices exist today. Innovation in tech has democratized the stock market — the challenge now is to “spread the wealth of the wealth of technology” i.e.tap into the power of what we’ve been given.
A key problem, however, regardless of how easy it may be to invest in this day and age, is that among lower and middle income families there remains a stigma towards investing and a fear of losing money that is stronger than the desire to build on it (Wong). Though many European countries have lower participation rates in their respective financial markets than we do — Europeans can afford to do so, because so many social programs are funded by the state. In America we can’t afford not to build personal wealth. As a truly capitalist society we must ride the wave of our markets or be left behind — and regardless of our true wellbeing, if the markets are doing well, we as a nation are supposedly doing well too. This American construct is exactly why citizens must get a hand in our markets. If we are all invested in the markets — at that point the so-called well-being of our nation will truly become far more aligned with the entire population rather than with just a handful of corporations and elites at the top.
On a local level, low and middle income families in Los Angeles, as well as low and middle income students at USC are extremely likely not to have any money in our financial markets based on admittedly unscientific but compelling evidence. Out of the 10 students I asked, only 3 of them have any money invested in the market while the other 7 showed little to no interest in even learning about what they were missing out on. Though it is a small sample, and ironically may be evidence of the apathy of the rich (as — anecdotally — the parents of USC students often are) 70% of students in lower or middle income families have no money benefitting from our financial systems. Further, when visiting Santa Monica pier I asked a handful of vendors if they had any of their money invested in our markets. Unanimously, the answer was no. “What is that?” they asked. If we are to raise our lower and middle classes, awareness for the systems which can grow our wealth is imperative — regardless of the amount of money we make or capital we own.
In an article titled “Even Poor People Can Buy Stocks”, Rocco Pendola writes that “Even if you’re dirt poor, there’s no reason to not be in the stock market. In 2020, only one barrier exists — access to information and technology… For as inequitable and mean as our capitalist society is, you have to give the stock market’s gatekeepers credit. They have removed the financial barriers to access [what] once prohibited people with very little money from investing.” This is to say that there is no longer any barrier, dissolving the problem of cost of entry, and therefore we can all invest regardless of financial status. Thus, the common refrain of an excuse no longer holds. “I don’t have enough money to invest.” Not true. “Do you have $1.00? If not, you can find $1.00. And probably considerably more. Start with the food you eat. Think about impulse purchases. Examine how you’re spending the income you can dispose of after paying your obligatory living expenses. On the rare occasion I find myself in the convenience store at the corner of my street, I see all kinds of people — rich, poor, somewhere in between — spending all kinds of money on stuff they not only don’t need, but that robs them of wealth and health. Divert some of this cash into a no-minimum, no-fee, online brokerage account, load up on fractional shares, and you’ll start seeing results instantly. Even if you don’t build an impressive balance right away, the choice you made represents $1.00 earned and a $1.00 saved. That’s a psychological boost more valuable than most other things you can spend your money on” (Pendola). Investment in our markets is imperative for all citizens. Though individual stocks can be risky, investment in the broad market, over years, has very good odds (Wong). The U.S. stock market on average returns about 8% a year if all citizens wealth were to grow anywhere near this margin, the lower and middle classes of American society would obviously be far better off. Furthermore, a society equally invested from the bottom up, will create an economy more in tune with its people and make way for the majority of our society to grow their wealth at similar rates, rather than watch as only the rich get richer.
