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Financial Planning > Behavioral Finance

Americans’ Personal Financial Satisfaction Hits 10-Year High: AICPA

By Michael S. Fischer

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Americans are experiencing their highest levels of personal financial satisfaction in more than 10 years, according to the American Institute of CPAs.

The AICPA, which released its Q2 2017 Personal Financial Satisfaction Index on Thursday, said stock market gains, more job openings and a decrease in inflation from the first quarter drove personal financial satisfaction to a high not seen since the fourth quarter of 2006.

The PFSi is calculated as the difference between two component sub-indexes: the Personal Financial Pleasure Index minus the Personal Financial Pain Index. Positive readings indicate that Americans are feeling more financial pleasure than pain.

The second quarter PFSi increased by 7.6 points from the first quarter to 24.1, owing to a 1.4 point uptick in the personal financial pleasure index and a substantial 6.2 point decrease in the personal financial pain index.

“In conversations with our clients, we’ve been telling them to be aware of the long-term trend,” David Stolz, member of the AICPA PFS credential committee, said in a statement. “People naturally overweigh the current situation and forget that it is part of a cycle.

“Americans shouldn’t let their present situation allow them to drift from their plan of reducing debt and adding to their savings. It’s always wise to save some acorns in the summer, because we know eventually winter is coming.”

It’s a Pleasure

The pleasure index set a record for the third consecutive quarter, clocking in at 66, up 1.4 points from the first quarter and 5.6 points from a year ago.

The pleasure index comprises four equally weighted factors that measure the growth of assets and opportunities. The PFS 750 Market Index has been the biggest contributor to the pleasure index for several years. It set a record in the first quarter at 79, 3.2 points over the previous high, and held steady in the second quarter.

Information technology experienced the strongest gains followed by consumer discretionary and health care over the previous quarter, whereas energy and telecom experienced losses.

The Job Openings per Capita Index recorded 69, a 5.3 point increase over the first quarter, and moved into position as the second most important contributor to the pleasure index.

Job openings were highest among lower-paying sectors such as leisure/hospitality and accommodation/food services, both of which had all-time high vacancies. In addition, government job openings stood at their second-highest level ever, in part because the federal hiring freeze was lifted in April, resulting in many open positions.

At the same time, hiring was notably weak in the IT, trade, transportation and financial activities sectors. The AICPA said employers were having a harder time finding skilled workers to hire as the labor market continued to tighten, citing the Federal Reserve’s Beige Book April 2017 Report. 

The Real Home Equity per Capita factor, at 65 in the second quarter, measured 7.1% above the prior year level and 0.9% above the previous quarter level. It is still 16.5% below its 2006 all-time high.

The changes in value have been due to increases in the market value of real estate which have exceeded increases in mortgages outstanding, the AICPA said.

The fourth factor in the pleasure index, the AICPA Economic Outlook Index, was the only one that decreased from the previous quarter level, dropping 0.9 points to 51. The survey for this factor, which captures the expectations of CPA executives in the year ahead for their companies and the U.S. economy, was conducted in May.

Not So Painful

The personal financial pain index, which measures the erosion of assets and opportunities, stood at 41.8 in the second quarter.

All four of its equally weighted factors decreased from the previous quarter, combining to drop the index 6.2 points and contributing to the overall improvement in the PFSi.

The inflation factor comprises 95% annual change in the PCE Price Index and 5% annual change in the Consumer Price Index for Fuel Oil and Other Fuels, as published by the Bureau of Labor Standards. It is the most volatile factor contributing to the PFSi, according to the AICPA.

The institute said the second-quarter pain index depended on the May level, and noted that it had been held down in recent months by a price war in the wireless cell phone industry and declining prescription drug prices.

The second-quarter blended inflation measure was 1.4%, compared with 1% a year ago, but 1.7% last quarter. The AICPA noted that the Fed’s target for inflation is about 2%.

In terms of the index, the second quarter value was 34, compared with 51 in the first quarter and 23 a year ago.

Following are the other three factors in the pain index:

  • Personal taxes: 52, 1.2 points from Q1 and 1.4 points year over year
  • Underemployment: 38, down 5.3 points from Q1 and 6.9 points year over year
  • Loan delinquencies: 43, down 2.7 from Q1 and 9.9 points year over year — still 23.8 points higher than they were in Q4 2006, the previous high

“Consumers should keep in mind that the Fed will likely continue to boost interest rates, making it more expensive for banks and ultimately, the consumer to borrow money,” Robert Westley, member of the AICPA PFS Credential Committee, said in the statement.

“In advance of future rate hikes, Americans should look to pay down their credit cards and other high-interest bearing debt as much as possible. Any future interest rate increase will result in higher monthly payments and therefore less disposable income and less financial satisfaction.”

— Check out Americans’ Personal Economic Anxiety Down Since Election on ThinkAdvisor.

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