If You Had the Money, Would You Invest in the Stock Market?

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Remember GameStop? That was an example of the stock market NOT working the way it usually does. But how is it supposed to function? And why do people invest (even when random game companies from the 1990s aren't in the news)? Join Myles as he explores how the stock market works and why people pay money to own a teeny piece of a huge company. Then you make the call: If you had the money, would you invest in the stock market? And why?

TEACHERS: Get your students in the discussion on KQED Learn, a safe place for middle and high school students to investigate controversial topics and share their voices. Click to see this video and lesson plan on KQED Learn and get started on KQED Learn.

What is a stock? 

A share of stock is an ownership unit. If you own a share of stock in a company, that means you own a tiny piece of that company.  You can drop a hundred and thirty dollars on a single share of Apple, but there are around 17 billion total shares of Apple out in the world. Companies sell stock so they can raise money. And people buy stock as an investment. The hope is that over time, the value of that share will increase so that it can be sold for a profit.

When did the whole idea of buying and selling stocks begin? 

It’s been a thing for centuries. The first official stock exchange got its start in Amsterdam in the early 1600s. The idea spread quickly, and the U.S. got into the stock game in 1792 with the New York Stock Exchange. New York remains the financial capital of the world. That’s where Wall Street is located, and it’s where some of the world’s biggest banks and financial firms have their fancy headquarters.

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What can happen if the value of stocks drop? 

When enough stocks have a bad dip all at once, you can have recessions or full-blown depressions. The most famous was the Wall Street Crash of 1929 that led directly to the Great Depression. Between 1929 and 1932, the stock market lost 90 PERCENT of its value! People saw their life savings basically get wiped out! Tons of businesses closed. Banks closed. Millions lost their jobs. The economy performed terribly for a decade.

More recently, we had the 2008 financial crisis, AKA the Great Recession. Many of you watching probably lived it. Housing prices fell. Millions could no longer afford their mortgages. “Foreclosed” signs popped up all over the place. The stock market tanked. And again, tons of businesses closed. Millions lost their jobs. And the economy performed terribly for a decade.

 Who owns stock in the U.S.? 

In the U.S., around half of Americans own stocks. And that break down is 60 percent of White households are invested in the stock market, compared to only 31 percent of Black households and 28 percent of Hispanic households. And there’s a big difference between how much people from different income levels have invested in the stock market. Families making between 35K and 53K a year typically have around 12,000 bucks in the market. Families making between 53k and 100k have around $26,000 in the market. For families making over 100k, it’s $138,000. So, that’s a pretty big difference.

Is the stock market the same as the economy?

Turns out, the stock market DOES NOT equal the economy! Let me repeat that. The stock market DOES NOT equal the economy! Most private businesses and mom & pop shops have NO connection to the stock market. So, all the corner stores in your city can go out of business, and it’s not going to affect the stock market. And it’s those kinds of businesses that got really hurt by the pandemic. But the companies that drive the stock market -- Apple, Google, Amazon -- actually did REALLY well and made money during the pandemic.

Basically, we have this big divide between the actual economy on the ground and the performance of the stock market. And that contributes to the even bigger problem of financial inequality in the U.S. You have to be invested in the stock market to have any chance of making money from it. But to do that, you need money to spare to put INTO the stock market. And that won't happen if you’re living paycheck to paycheck.

SOURCES:

The scarring effects of COVID-19 on the global economy https://voxeu.org/article/scarring-effects-covid-19-global-economy

The VOC and Amsterdam’s first exchange building https://www.worldsfirststockexchange.com/2020/11/17/the-voc-and-amsterdams-first-exchange-building/

2020 was the worst year for economic growth since World War II https://www.washingtonpost.com/business/2021/01/28/gdp-2020-economy-recession/

U.S. economy loses jobs as COVID-19 hammers restaurants, bars (Reuters) https://www.reuters.com/article/us-usa-economy/u-s-economy-loses-jobs-as-covid-19-hammers-restaurants-bars-idUSKBN29D0J9

60% of business closures due to the COVID-19 pandemic are now permanent, Yelp data shows (Yahoo! News) https://in.news.yahoo.com/60-business-closures-due-covid-132907991.html

The stock market is ending 2020 at record highs, even as the virus surges and millions go hungry https://www.washingtonpost.com/business/2020/12/31/stock-market-record-2020/

More than half of U.S. households have some investment in the stock market (Pew Research) https://www.pewresearch.org/fact-tank/2020/03/25/more-than-half-of-u-s-households-have-some-investment-in-the-stock-market/