Only about 53 percent of Americans own stocks, and those who do mostly have them in retirement accounts they may not tap for decades. So the stock market's recent drop won't have much effect on them.
Copyright NPR. View this article on npr.org.
ARI SHAPIRO, HOST:
With all the financial turmoil this week, here's a simple sentence that it might be useful to repeat.
AUDIE CORNISH, HOST:
The stock market is not the economy.
SHAPIRO: Let's try that together.
CORNISH: The stock market is not the economy.
SHAPIRO: The stock market is not the economy.
NPR's Sonari Glinton explains why.
SONARI GLINTON, BYLINE: If we're all locked-in on the one big idea for this story, let's talk to some economists. First up...
JULI NIEMANN: Juli Niemann.
GLINTON: She's with Smith Moore & Co. in St. Louis.
NIEMANN: The stock market anticipates what's going to happen to the economy, and the stock market is frequently wrong.
GLINTON: Niemann rattles off a number of stats that point to why the average American should feel pretty good, or OK at least. Hiring and home values are up, gas prices and mortgage rates are down, inflation is low, the whole pace of layoffs has slowed, consumer confidence is up, and Niemann says the average consumer is handling their finances better.
NIEMANN: They've been doing the prudent thing all the way along just by spending less.
GLINTON: Next up, Sylvia Allegretto. She's a labor economist at UC Berkeley. She says, remember the last six years, when the stock market nearly doubled, and you felt nothing? Well, that's because...
SYLVIA ALLEGRETTO: Only about half of families in the U.S. have any holdings in the stock market at all. That's including holdings for retirement, you know, 401(k)s and the like. And if you look at the bottom 60 percent of those families that are actually in the stock market, their typical holdings are about $10,000.
GLINTON: Allegretto says workers are likely to continue to experience a tepid, anemic recovery. That is, unless things get really, really bad.
ALLEGRETTO: But the other side of the coin is that even though workers and their families and, you know, average communities don't benefit from this booming stock market over the last few years, we know when the crash comes they certainly pay the price.
GLINTON: Allegretto says if we want to know about the economy, we should look at wage growth or how many people have given up on finding a job. When I called Imara Jones, who focuses on how the economy affects marginalized groups like the poor, African-Americans and the LGBT community, he says, despite what you hear on the radio, the average worker is not concerned and is frankly kind of ignorant about the stock market.
IMARA JONES: Their ignorance is actually correct (laughter) because it doesn't matter anymore. And the stock market doesn't matter anymore because we have decoupled the link between average Americans and the stock market, which used to be tied in a host of ways.
GLINTON: So for instance, pensions are tied to the market, but most of us don't have those anymore. Also, there's no longer as much of a correlation between rising corporate profits and raises for workers.
JONES: Once upon a time, the stock market was going up. It was a pretty good sign that Americans were going to be earning more. Well, none of those things exist anymore. The stock market now is basically the wealth indicator for the 1 percent, and for most people, it doesn't matter anymore and they shouldn't pay attention to it.
GLINTON: Camelia Kuhnen of the University of North Carolina is an expert in neuroeconomics. She studies what's happening in our brain when we make financial decisions. Kuhnen says if you do pay attention, this is probably the worst time to be making financial decisions, when you're hearing bad news.
CAMELIA KUHNEN: People are really good at overreacting. They overreact when they see a few bad days, and they sell and sell. And then they also overreact when they see a string of good things.
GLINTON: When we hear about stocks falling or bad financial news, we respond the way we would in the wild, as if there were a predator lurking somewhere in the bushes.
KUHNEN: There is no predator, so this automatic reaction to just sell everything and run away would not be warranted in this setting.
GLINTON: You know, I feel like every couple of years when there's a market correction or panic, I call you up and you say people should not freak out. (Laughter).
KUHNEN: And typically, I'm right. Typically I'm right. I mean, if you look what happens down the road, the market does go up.
GLINTON: OK, got that, everybody? One more time, with feeling - the stock market is not the economy. Sonari Glinton, NPR News. Transcript provided by NPR, Copyright NPR.