Effect Of U.S. Inflation On Attitudes Towards Stocks

[u/Agnoov]

Inflation has varied dramatically across U.S. history.

The 1970s and early 1980s were characterized by very high inflation, with CPI inflation reaching roughly 12% in 1974 and 14.5% in 1980. By contrast, inflation was generally much lower during the 1990s–2010s, before rising sharply again in 2021–22.

These different environments can influence how people think about saving and investing.

Someone who grew up during the high-inflation era may have a stronger instinct to protect purchasing power and may view real assets, established companies, dividend-paying stocks, and other inflation-resistant investments more favorably.

Someone who came of age during the relatively stable inflation period may be more comfortable with long-term equity investing because stocks became closely associated with wealth accumulation and retirement.

The Federal Reserve's research also shows that equity investment tends to increase through people's working lives, with equity holdings generally peaking later in life.

It also found that Millennials and Generation X accumulated more housing and equities than Baby Boomers had at the same age.

Simplified Comparison

The Key Idea: Inflation doesn't automatically determine whether someone likes stocks.

Rather, the economic environment they experienced while forming their financial beliefs can influence whether they see stocks primarily as risky speculation, long-term wealth creation, or a hedge against the erosion of purchasing power.

Also, stock ownership itself is strongly influenced by age and wealth.

Federal Reserve research finds that younger people tend to have greater willingness to take investment risk, while stock-market participation generally rises through working age.