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Published on Wednesday, July 26, 2000 in the St Paul Pioneer Press
More Americans May Own Stock, But Many Live On Financial Edge
by Froma Harrop
The broadening of stock ownership is turning the American working class into the investing class. So it is alleged.

``What we must not ignore,'' said an article in Rising Tide, the magazine of the Republican National Committee, ``are the enormous potential benefits this offers to Republicans, and equally important, to the conservative causes of free markets and limited government.'' Dream on, fellas.

It may be true that regular Joes now watch CNBC business news. And taxi drivers trade stock from laptops on their front seats. But do they think that their economic interests now coincide with Bill Gates'? Put another way, Tiger Woods and Uncle Ed may both play golf, but they are not quite playing the same game. The idea that the great American public would happily trade government programs for business-friendly tax cuts is highly questionable.

That is not to say that the growth of the stock-owning public is not happening. It is. Nearly half of all American households participate in the stock market. Some manage their own portfolios. Some hold stock through 401(k) plans, or other tax-advantaged accounts. Only 32 percent of households owned stocks in 1989.

But there are other numbers. Despite the impressive growth in stock ownership, more than half of American households still do not possess a single share. And those that do generally don't have the kind of portfolio that would replace the level of security found in government programs. Of Americans who do own stock, half have portfolios valued at $50,000 or less. Without Medicare to pick up the bill, a heart-bypass operation with minor complications would wipe out the entire $50,000.

Furthermore, there is evidence that while stock values have risen in recent years, overall family wealth has grown very little for the middle class. For one thing, families continue to accumulate debt. And the rise in value of stocks and retirement accounts has been offset by a decline in other kinds of savings, such as the old-fashioned bank account. It is entirely possible for an American family to have both a growing stock portfolio and falling economic security at the same time.

Every three years, the Federal Reserve Board issues a Survey of Consumer Finances. Scouring the latest (1998) survey, New York University economist Edward Wolff concluded that stock market gains have not propelled the American middle class into the money club. To the contrary, he writes, ``the only segment of the population that experienced large gains in wealth since 1983 is the richest 20 percent of households.'' And since 1989, ``non-elderly middle income families actually experienced the largest losses in wealth.''

More families now live on the edge of disaster. From 1983 to 1998, the proportion of American families with zero or even negative net worth actually grew from under 16 percent to 18 percent. This should not be a great surprise to anyone who watches television. Observe all those advertisements for home-equity loans worth more than the value of your house. Note also the ads for Internet stockbrokers offering low commissions and margin accounts (whereby the broker will lend you money to buy stocks).

One trembles to contemplate what would happen in an economic downturn in which jobs are lost and housing values decline. According to Professor Wolff, middle-income families headed by people between the ages of 25 and 54 years had enough financial reserves in 1998 to sustain their normal consumption for only 2.2 months, down from 3.6 months in 1989. Families in the lower middle class and the lower-income classes had accumulated virtually no financial reserves.

Finally, keep in mind that this precarious state of affairs follows seven fat years of stock market gains. The financial well being of the new ``investing class'' could collapse in a prolonged bear market. And so would any middle-class enthusiasm for proposals to replace government programs with private investment accounts.

The cover on the spring issue of Rising Tide shows a workman in a hard hat, grinning as he reads the inside pages of the Wall Street Journal. It's the stuff conservative fantasies are made of. But a realistic examination of this man's personal finances might lead to a very different conclusion: This guy will need a guaranteed Social Security check a lot more than a cut in capital-gains taxes.

Harrop is an editorial writer and columnist for the Providence Journal.

2000 PioneerPlanet / St. Paul (Minnesota) Pioneer Press


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