The average person (we will refer to as 'Person A') in America looks like this -
Annual Income: $61,937
Annual Consumption: $61,036
Net Worth: $121,411
Estimated Stock Investments: $54,000*
Annual Stock Income: $4,968
Annual Tax Savings: $348
*greater than 95% of this stock investment is via 401-K or pension plans
And here is what the the average person in the top 10% ('Person B') looks like -
Annual Income: $309,348
Annual Consumption: $96,036
Net Worth: $2,598,400
Estimated Stock Investments: $1,392,830
Annual Stock Income: $128,140
Annual Tax Savings: $19,221
A couple of quick observations based on the above include -
Person A lives paycheck-to-paycheck, meanwhile;
Person B saves more than 3 times Person A's salary every year
Although Person B makes more than 5x the income of Person A, they only do 1.5x the spending; aka consumption does not rise proportionally to income
The stock market produces 28x more income and tax savings for Person B
If Person B suddenly had no income, they could live the exact same lifestyle just on their stock market income and tax savings... for the rest of their life
If Person A suddenly had no income, they would drain their entire net worth in just two years
Assuming both keep their current pattern of income and consumption and don't sell any stock; the gap between Person A and Person B in just five years grows by 159%, where Person B has nearly 6.5 million more dollars
It is easy to see based on the above how the stock market perpetuates wealth inequality by widening the gap between top income earners and average income earners. What does this number look like as an entire population?
The difference between the top 10% of US earners and everyone else is about 15.37 trillion dollars. To put that number into perspective it is just about the size of China's GDP as the second wealthiest country in the world. Let me say that again, the difference between average consumers that barely participate in the stock market and the top 10% that have more than half of their net worth in stock is the size of China's economic output.
On the other hand, if every American invested just 1% of their consumption back into the stock market, the wealth gap would close by approx. 2% each year. If Person A put away just 1% of their consumption into the stock market, in 10 years that person would be able to pay about 1/3 of that consumption each year with just stock market income. Person A would also have a 50% higher net worth than if they didn't do this. Food for thought next time anyone asks why participating in the stock market is right for everyone.
*Note: if you are curious as to how I arrived at any of the above figures, please feel free to reach out to me at email@example.com.