An analysis found more Americans are investing. A Maryland accounting professor is raising concerns.
A Maryland accounting professor is raising concerns after new research found more Americans are moving their money from checking and savings accounts to accounts with a return on investment.
The analysis by JPMorganChase Institute examined 4.7 million Chase households. It found that checking and savings account balances are lower than expected based on historical trends. Total cash reserves, which include brokerage accounts, money market funds and CDs, have been rising since mid-2024 and are approaching historical growth trends.
More Americans investing signals confidence in the U.S. economy, according to Accounting Professor JP Krahel with Loyola University Maryland.
“I think a lot of people, and this may be due in part to apps like Robinhood and Acorn kind of democratizing the investment process, making a lot of people realize…investing is not that scary,” Krahel said. “I think a lot of people are starting to become confident in their ability to invest.”
Concerns about more investors
While keeping money in the bank runs the risk of missing out on opportunities, Krahel said investing also comes with risk. He has two concerns about the findings.
One is that people are investing money that they cannot afford to lose if the market takes a downturn.
Most stocks rise over time, Krahel said, but it’s not a guarantee. Money needed for food next month or your kids’ tuition should not be money that you’re investing in the stock market, he advised.
His other concern is about how much credit card debt American households carry. The average U.S. household with credit card debt has a balance of around $6,065, according to the Federal Reserve Bank of St. Louis.
“The reason why that’s a problem is because if your investments are growing at, say, eight, maybey 10%, if you’re doing really well, that’s nice, but if your debts are growing at a credit card interest rate, that’s closer to 25%, really, what are you doing here?” Krahel said.
Krahel recommends paying off credit card debt before putting money in investments, because it’s a guaranteed tax-free rate of return that will also help your credit score.
Who should be investing?
Young people should start investing and saving for retirement now, to really make an impact, according to Krahel.
He recommends learning about how the system works and doing your research before investing in companies. Check financial statements and be able to answer the question, “Is this company growing in profitability?”
Krahel also recommends taking a financial accounting class to understand the information that publicly listed companies are required to provide.
“So, the information’s out there, and you’re choosing not to digest and incorporate it. Well, you’re kind of playing at a disadvantage here, and that advantage, once you know how to read statements, is free, so you may as well take advantage,” Krahel said.
For people who are getting into investing, Krahel encourages taking a little bit of throw-away money, investing it, and seeing how it turns out.
See if you can stomach losing money, and if all you see is winning and you decide to double down, be prepared if things take a turn, Krahel said.