The U.S. capital markets are where people – individually and collectively through pension funds and mutual funds – invest their savings to seek a return. By putting their capital to work in our markets, they invest in companies that drive innovation. They also invest in state and local infrastructure like roads, schools and hospitals. Combined, their savings fuel economic growth, and job creation. And as discussed in a recent report from SIFMA Insights, Who Owns Stocks in America, a wide universe of Americans today own stocks.

As SEC Chairman nominee Gary Gensler said at his recent confirmation hearing, “the capital markets touch every part of our economy. They enable businesses to develop new products, build new facilities, and grow their payrolls. They help working families save for retirement and invest in their children’s futures. And although it may not seem intuitive, when someone goes to take out a mortgage or open a credit card, our capital markets are on the other side of those transactions as well.”

The Retail Investing Market Landscape

Many American families are invested in the market – but to address retirement needs these numbers should be higher, both in terms of account holdings and number of households.

Let’s take a moment to look at the retail investing market landscape. Where are American families putting their funds? Specifically, individuals are invested in $39 trillion of the following:

• $11 trillion in IRA accounts
• $7.4 trillion in defined contribution private pension plans (includes company matching)
• $3.4 trillion in annuities
• $6.4 trillion in 401(k) accounts (a type of defined contribution account)

Federal Reserve data from 2019 shows 52.6% of Americans own stocks, or 65 million households and a Gallup poll conducted in March/April 2020 indicates this number may now be even higher at 55%. Americans invested in the stock market benefit from share price gains, whether they own individual stocks in brokerage or investment accounts or, more commonly, through personal retirement accounts including IRAs or employer-offered plans such as 401(k)s. The total value of U.S. retirement assets increased by 10.8% in 2019, according to Federal Reserve Flow of Funds accounts – a good sign for savers.

On the flip side, 2019 Federal Reserve data shows a median value of $40k for a household’s stock holdings. This clearly tells us that many American families are invested in the market – but to address retirement needs these numbers should be higher, both in terms of account holdings and number of households.

Today, U.S. workers are increasingly relying on individually funded retirement plans, such as 401k’s and IRA’s. Defined contribution plans account for $7.4 trillion in assets, growing at a 7% compound annual growth rate over the last decade. Both through their employers and individually, Americans today are largely responsible for building their retirement accounts themselves. Over 56% of total retirement assets are individually funded through defined contribution retirement plans and IRAs.

Struggling to Save for Retirement

Helping Americans build savings for a secure retirement is among the most important roles of the U.S. capital markets.

As noted by Mr. Gensler, helping Americans build savings for a secure retirement is among the most important roles of the U.S. capital markets. There is a significant amount of data showing that too many Americans struggle to save enough for retirement, and policymakers have long worried the U.S. is facing a looming retirement crisis. People are living longer, and certain sources of guaranteed retirement income that were relied on in the past, like pensions, are increasingly uncommon.

The challenge is even greater for particular segments of the American population, including women, Black and Hispanic Americans as well as small business owners and those who work in the agricultural sector.

Many Black and Hispanic Americans, for example, may be hindered in saving for retirement by factors such as less intergenerational wealth, college debt, lower disposable income, and lower homeownership rates than White Americans, according to academic and government data.

As reported by the Wall Street Journal recently, “Black families on average had roughly one-sixth the savings set aside for retirement compared with White families, according to an analysis of government data by the Urban Institute. That is $25,000 in retirement savings accounts for Black households as of 2016 versus $158,000 for White households. Hispanic households fared only slightly better than Black households at $29,000.”

Inadequate retirement savings most directly impacts the retiree, but also has repercussions for subsequent generations in terms of adult children who must make up the shortfall for their parents – which not only shifts the financial burden but also decreases the likelihood of receiving a helpful inheritance that can support the success of future familial generations. Ensuring all Americans are prepared for retirement can help give rise to intergenerational wealth.

Financial Advice is the Critical Link

Financial advice specifically is a critical link in helping individuals save more and reach their financial goals.

Providing financial guidance, advice and education is a cornerstone of the industry in terms of helping Americans grow their savings – and investors see the value in receiving advice. Research from Cerulli Associates found individual investors were very satisfied with their advisor relationships: 74% report they would recommend their advisor and 77% believe their advisor is worth the cost. This trust and satisfaction allow advisors to help clients identify, prioritize and pursue financial goals as well as navigate challenging times while ensuring that their personal goals are understood.

Fostering Financial Literacy for All

Financial literacy programs engage students and improve academic performance, financial knowledge, and saving and investing habits.

Another aspect to ensuring Americans are able to grow savings – and one in which the financial industry strives to play a vital role – is financial literacy education, importantly starting at an early age. The SIFMA Foundation is dedicated to fostering knowledge and understanding of the financial markets for individuals of all backgrounds, with a focus on youth.

Drawing on the support and expertise of the financial industry, the SIFMA Foundation provides financial education programs and tools that strengthen economic opportunity across communities and increase individuals’ awareness of and access to the benefits of the global marketplace. The programs reach 600,000 high school, middle school and elementary school students from more than 12,000 schools nationwide each year with critical financial literacy programs. This includes 300,000 girls and more than 200,000 students of color each year.

Confirmed both anecdotally from teachers and by research from FINRA and American Institutes for Research (AIR), the financial literacy programs engage students and improve academic performance, financial knowledge, and saving and investing habits. Additionally, the National Assessment of Educational Progress found a positive and significant relationship with students’ test scores in Economics, while the Jump$tart Coalition for Personal Financial Literacy found high school students who participated in a stock market game “did significantly better than other students on the financial literacy exam.”

What Public Policy Can Do

We need to boost retirement savings, enable Americans to save more, promote financial literacy and support a strong retail investor culture.

What more can public policy do to improve everyday savers’ ability to grow their money for a secure financial future? We need to boost retirement savings, enable Americans to save more, promote financial literacy and support a strong retail investor culture. Specifically, we are supportive of policy options that will support and incentivize small businesses to offer retirement plans, enable older Americans to save more and hold on to their savings longer, and allow matching contributions for student loan payments.

The Message Needs to Be Loud and Clear

Overall, the message needs to get out loud and clear – individuals of all income levels should be able to get started in investing, invest for the long-term, and consider working with a professional financial advisor for the sake of your financial health and stability.

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Kenneth E. Bentsen, Jr. is president and CEO of SIFMA, the voice of the nation’s securities industry. He is also chief executive officer of the Global Financial Markets Association (GFMA).