Americans’ sentiment toward their personal finances reached a record high in the third quarter, amid a more optimistic outlook on the stock market, the economy, home values and employment, according to the American Institute of CPAs (AICPA).
The latest data are further indication that accountants could help individuals with their finances, as their personal wealth increases.
The Personal Financial Satisfaction Index (PFSi) rose to net 25.9 in the third quarter, jumping from 18.5 in the same period last year and 23.3 from the previous quarter. The July-September period surpassed the earlier mark set in the fourth quarter of 2006, by 3.1 percent.
The index is the net figure of two sub-indexes: the Personal Financial Pleasure Index, which measured at around 68.1, and the Personal Financial Pain Index, at around 42.1. Four equally weighted factors combine in each to measure gains and losses of assets and opportunities.
The pleasure index includes the PFS 750 Market Index, a proprietary stock index of the 750 largest companies but it doesn’t include American depository receipts, mutual funds or exchange-traded funds; the AICPA Outlook Index referenced above that measures the expectations of financial insiders and their plans for their organizations; home equity, which calculates the market value of real estate, households and nonprofits minus their mortgage obligations, Personal Consumption Expenditures Price Index and divided by the civilian non-institutional population; and job openings, which calculates non-farm job openings divided by the civilian non-institutional population.
The pain index, on the other hand, measures loan delinquencies published by the Federal Reserve calculated as a 75 percent delinquency rate on single-family mortgages and 25 percent delinquency rate on all loans and commercial banks; inflation, which includes 95 percent of the annual change in the Personal Consumption Expenditures Price Index and 5 percent annual change in the Consumer Price Index for Fuel Oil and Other Fuels; personal taxes, which includes taxes on income, net capital gains, personal property, motor vehicle licenses and miscellaneous fees and taxes while excluding Social Security and Medicare taxes and taxes on real property, sales and certain penalties; and under-employment, which combines Bureau of Labor Statistics on total unemployed numbers, all marginally attached workers and part-time workers.
Here’s a closer look at the specific findings:
This index’s increase over 2016 was driven by a 13.8 percent gain in the 750 Market Index and a 16.3 percent increase in the CPA outlook. Home equity increased almost 8 percent and job openings rose 3.1 percent.
A 7.9 percent increase in home equity led the second quarter followed by a 3 percent gain in the 750 market index and 3.6 percent rise in job openings. The CPA outlook rose 3.6 percent after a decline in the second quarter.
Economic factors hurt slightly less in the third quarter, which was 2.9 percent lower than 2016 and 1.1 percent below the second quarter.
Compared to 2016, loan delinquencies dropped 20.3 percent but inflation rose 42.2 percent. So the index’s decline really is based on the 13 percent drop in under-employment even though taxes rose 1.4 percent.
By quarterly comparison, loan delinquencies dropped 6.7 percent and inflation dropped 5.5 percent while taxes rose 3.6 percent and under-employment increased 2.8 percent.
Terry Sheridan is an award-winning journalist who has covered real estate, mortgage finance, health care, insurance, personal finance, and accounting and taxation issues for newspapers, magazines, and websites. A Chicago native and former South Florida resident, she now lives in New England.