Increased Equity Investment to Address Wealth Inequality
Date
2022-06-30
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Abstract
Historically, the wealth portfolios of upper income households have differed significantly from the portfolios of middle-/low-class households. Their wealth has been held in different types of assets, creating a clear distinction between the amount of wealth held by each group in equities vs mortgages. Particularly, wealthy households hold most of their wealth in equities while middle-/low-class households hold most of their wealth in mortgages. To lessen the wealth gap, increasing equity holdings of middle-/low-income households’ portfolios may be a solution. Indeed, since the pandemic, more of middle-/low-class households’ wealth have been in equities. In this paper, I examine the wealth portfolios of households, its recent portfolio change, and what benefits there may be in adopting a policy approach (such as “baby bonds”) to wealth diversification for middle- and lower-income households. Data shows that the rate of return on equities owned by middle- and lower-income groups moved in similar trends to that of the wealthy. Some policy implications to increase wealth returns for the middle and lower class could be enhancing financial literacy, increasing mutual fund participation, increasing returns on savings accounts, and Baby Bonds.
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wealth inequality, economics, equities, investment, returns on wealth