Trends in Stock Market Participation by Household Income

Why do we care about how many people participate in the stock market? Well, stocks are claims to the future cash flows of companies. Stocks therefore provide a means for individuals to own a piece of economic growth. Individuals who do not participate may see improvement in their living standards over time, but their relative living standard will fail to keep pace with those owning stocks if the global economy continues to expand and innovate. 

The chart below shows the median fraction of households reporting dividends in the U.S. by income category. The data is zip code level, so each point represents the median fraction of adults reporting dividends across all zip codes in the U.S. by income level.

Investors holding broad portfolios will receive a dividend, so the dividend is a measure of stock market participation. The measure is imperfect because not all stocks pay dividends. Investors still have to report dividends even if the dividends are reinvested.

Evident in the chart, households earning more than $100k annually are much more likely to hold stocks than households earning less than $25k and households earning $25-100k. Approximately 50-60% of tax payers earning more than $100k report dividends. Only 20-30% of households earning $25-100k hold stocks. And less than 15% of households earning less than $25k hold stocks.