I was recently looking up statistics on stock ownership broken down by subgroup (income level, education, age, race/ethnicity, gender, and political party affiliation), and I was surprised to discover that while around 60% of both Democrats and Republicans own stocks (61% and 65%, respectively), only 53% of Independents invest in the stock market. This is a significantly lower percentage than I would have expected for a group traditionally thought of as in-between Democrats and Republicans (and thus expected to have stock ownership in the 60% range), so I decided to do some digging to figure out why that might be.
My first thought was that maybe Independents have decision paralysis. They can’t make a firm decision regarding a political party, and perhaps they have similar difficulty deciding what to invest in or whether to invest in the stock market at all (and therefore invest at lower rates). However, this explanation seemed like it may be overlooking more obvious demographic differences that could account for the stock ownership gap.
I began by investigating whether education levels may play a role. Stock ownership increases significantly as education level increases, as shown below:
|Education level||Percent who invest in the stock market|
|High school or less||36%|
Perhaps Independents tend to have a lower education level, which could explain their lower stock market participation. To determine if this was the case, I looked up what percentage of each party are college educated and found the following:
As you can see, a larger percentage of the Democratic party is college educated than the Republican party. Independents are in between Democrats and Republicans as expected. Since stock ownership is a few points higher among Republicans than Democrats despite lower levels of education, it appears that education does not explain the difference in stock ownership by political party affiliation.
My next thought was to investigate whether income may play a role. People with higher income levels tend to have higher participation in the stock market, as you can see below:
|Annual household income||Percent who invest in the stock market|
|Less than $40,000||25%|
|$40,000 to $99,999||61%|
|$100,000 or more||89%|
This makes sense because people who make more money have more money to invest and likely more access to financial services. But which political party has a higher proportion of people with a household income of $100,000 or more?
Based on the 2018 Grinnell College National Poll, a larger proportion of Republicans make over $100,000 than Democrats, which may help explain why slightly more Republicans invest in the stock market than Democrats. However, the income profile of Independents is strikingly similar to Republicans, and almost the same proportion of Independents make over $100,000. This suggests that income cannot explain why Independents invest at lower rates, especially since based on income levels, they should invest at a higher rate than Democrats.
If neither education nor income can explain the difference in stock ownership, perhaps this difference is due to age. People under the age of 30 invest at lower rates that those over 30, possibly due to lower income levels, expensive life events (such as marriage, having kids, and the purchase of a first home), lower levels of financial literacy, or lower motivation to save for the distant thought of retirement.
|Age||Percent who invest in the stock market|
|18 to 29||41%|
|30 to 49||62%|
|50 to 64||67%|
How does political party affiliation differ by age? It’s well-known that more young people tend to be Democrats than Republicans, but what about Independents? Gallup asked this question in 2014, and you can see the results below:
Interestingly, age seems to have a strong inverse correlation to Independent party identification. About half of all people in their 20s identify as Independents! Meanwhile, only about 30% identify as Democrats, and 20% identify as Republicans. After age 30, Republican identification begins to increase, reaching the same level as Democrats by the mid 40s. This increase appears to come primarily from former Independents. Independent identification declines but remains a majority as age increases until about the 50s. This suggests that most Independents are young, possibly due to an indifference to politics and/or a lack of understanding of the two political parties and how their policies may affect the country and their daily lives. Since young people (particularly those below 30) have the lowest stock ownership rates, this provides a decent explanation for the low stock ownership rates among Independents.
I was surprised that the lack of a political party identification would have a correlation with low stock ownership rates, so I investigated whether there may be a demographic explanation, such as education, income, or age. Independents tend to have education levels between Democrats and Republicans and similar income levels to Republicans, so neither of those factors can explain the stock ownership gap. However, Independents tend to be younger than Democrats and Republicans, and young people own stocks at lower rates than older people. This is a plausible explanation for the stock ownership gap. It is also possible that indifference or hesitation to identify with a political party may also carry over to financial decisions, although this is just speculation.