Study: Middle Class Is Risk-Averse When It Comes to Investing

The middle class is conservative in investing, meaning smaller gains--but also smaller losses.


Upper-class investors are more willing to take their chances in stock and bond markets than middle-class Americans.

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There's a gap between the richest Americans and the middle class, and it's not just in income or lifestyle.

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Middle class Americans take different routes toward saving for the future than people at the top of the earnings ladder, according to the report from the Consumer Federation of America and financial products firm Primerica. Only 21 percent of people in the middle class—for this survey, with annual household incomes between $30,000 and $100,000—said that, given a sum of $1 million to invest for retirement, they would put it primarily in stocks and bonds. More than double that share of people earning over $100,000, nearly half, said they would do the same. Nineteen percent of the middle class group meanwhile said they would choose a savings account for most of the money, more than twice the rate of the upper-class group, at 9 percent.

The data, from an ORC poll performed earlier this summer, showed similar trends for hypothetical amounts of $100,000 and $10,000: higher earners were more likely to invest in higher-return investments like stocks than middle-income Americans, who were more likely than their wealthier peers to use savings accounts.

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"The principal reason that occurs to me for the difference in risk tolerance is that upper-income people can better afford to lose money," says CFA executive director Stephen Brobeck. "Middle-income people are getting closer to the edge financially, so it's a rational decision on their part not to invest heavily in an option that could cost them a great deal of money, even though there's a possibility of relatively high yields."

Indeed, the report attributes lower earners' "conservative investment preferences" to their losses during the recession. CFA and Primerica cite data from the Federal Reserve's Survey of Consumer Finances, released earlier this year. That survey showed that people in the third and fourth income quintiles, with household incomes of around $36,000 to $95,000 per year, lost 28 percent of their financial assets (not counting pensions) between 2007 and 2010.

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The differences between middle- and upper-class Americans' investing styles can make for a further widened gap between the classes, with upper-income people standing to gain more on their riskier investments. Then again, it can make for greater losses for richer Americans.

Both middle- and upper-class people admit that they have made "really bad financial decisions." Two-thirds (67 percent) of middle-class Americans and 61 percent of upper-class Americans put themselves in this category.

The survey does not reveal the nature of those mistakes, though Brobeck says that if the recent economic crisis is taken into account, for many respondents the cause could be subprime mortgages or credit card debt. What is certain is that the size of those mistakes varied widely. The median size of middle-class Americans' mistakes was $5,000, with an average of $23,000—meaning that some of these mistakes were sizable and pulled the average far upward. That seems large, but upper-income Americans made much bigger financial gaffes. They reported that their median mistake was worth $10,000, with an average of around $61,000.

Danielle Kurtzleben is a business and economics reporter for U.S. News & World Report. Connect with her on Twitter at @titonka or via E-mail at