(Rough draft) The Rift Between Wall Street and Main Street

During the heat of the Coronavirus pandemic, the United States economy suffered. In April of 2020, the national unemployment rates skyrocketed to 14.7%, totalling over 20 million jobs lost. This daunting statistic had not been seen since the Great Depression. While the majority of Americans found themselves in debt, unable to pay rent, and left in uncertainty about whether they have enough money to buy essentials, the stock market flourished. At the end of 2020, even though the Coronavirus pandemic was still prevalent, the stock market averaged a 65% rise since its bottom in March and finished 14% higher since the start of 2020. If millions of Americans lost their jobs, who is benefitting from these massive gains? The answer lies in the hands of the wealthy individuals on Wall Street. So while the pandemic left the majority of Americans not knowing where their next paycheck would come from, the wealthiest Americans continued to grow their wealth, deepening the income gap in our country. One factor of the increasing gap in income stems from America’s trend of inequitable access to financial and stock market literacy.

Financial and Stock Market Literacy: What Exactly is it and How Do the Wealthy Use it?:

Financial literacy is a widespread set of skills and knowledge that allows individuals to make informed and educated decisions about their finances, ranging from how to manage debt, save for retirement, manage their taxes, and invest in stocks. Many Americans possess a basic set of financial skills. However, a crucial distinction which separates America’s richest families and poorest individuals is stock market literacy- the knowledge on how to make proper and rewarding investments in the stock market. This pivotal difference is one of the many driving forces behind the inequitable distribution of America’s wealth. The wealthy families of America use stock market literacy and knowledge to make lucrative investments, which allows them to passively enjoy compounding returns on their initial investments. Especially during the recent stock market boom, those who obtain the stock market literacy to make the right investments, yield massive gains. The problem lies in the fact that the access to stock market literacy is limited and often unavailable for the lower and middle class. Since middle and lower class Americans lack access to stock market literacy, they miss out on the gains, while the literate wealthy families accumulate the majority of the returns from the stock market.

The Burden of Educational Institutions:

The unequal access to stock market literacy resources is a problem that policymakers need to put a higher priority on. In addition to the lack of access to stock market literacy itself, the very limited financial advice lower income families receive is often faulty and incorrect. Policymakers can alleviate this lack of accurate information about investing in stocks by adjusting and incorporating more programs into education institutions, thus giving quality investing advice accessible to families of any socioeconomic background. A study conducted by TeachForAmerica found that in 2018, a mere 3.6% of low income high schoolers were required to complete a financial literacy or investing course in order to graduate. This pitiful statistic shows that our current education system is not providing low income individuals the tools needed for financial success. It is ultimately up to policymakers to adjust our educational institutions to help fix the societal problem of unequal access to stock market literacy resources.

Debunking the Myth:

The limited access to investing in the stock market is an idea that is embedded into the roots of America’s capitalist society. This idea that only the wealthy can invest in stocks has created a stereotype of a typical investor. There is a tendency to believe that the investors who dominate Wall Street are large institutions, hedge fund managers, private equity firms, investment bankers, and generally wealthy individuals who have the money to invest. Although this stereotype is mostly true, it does not mean that investing is exclusive only to the wealthy. In fact, mostly anyone is eligible to invest in the stock market. It is this common myth that acts as the psychological barrier that intimidates and prevents the lower income families from building passive income through stock market investments. Providing equal access to stock market literacy resources is a major step to diversify the population of investors, but it is also important that we debunk this myth. By overcoming this barrier and myth, the riches of investing can be distributed more equally.

Why the Amateur Retail Investors are a threat to Institutional Investors:

However, Wall Street’s stereotypical investors are wary and hesitant about this unconventional wave of democratizing stock market investing. Earlier this year, a group of individuals on a Reddit forum called WallStreetBets caused GameStop’s stock to rally, which resulted in investment management firms to lose big time. Hedge funds including Melvin Capital, Citadel, and Maplelane Capital totalled billions of dollars worth of losses. The Reddit followers used democratized forms of investing, especially applications like Robinhood, to fuel the short squeeze that made the institutional short sellers lose billions. During this chaos, Robinhood halted Reddit users and other casual retail investors to buy GameStop shares, which angered many Reddit and retail investors. The U.S. Securities and Exchange Commission intervened and now Robinhood is facing many class action lawsuits. In sum, the major losses incurred by the hedge funds and institutions on Wall Street was caused by the increased access to liberalized forms of investing. This uproar left Wall Streets’ traditional institutional investors wary and skeptical about the idea of allowing anyone to enter the stock market, and they want to keep the stock market an exclusive club.

I am a current undergraduate studying economics and statistics at Swarthmore College.