For CPAs working on any form of financial planning for their clients, you should know that Americans are feeling more secure about their personal finances than they have in a decade, according to a recent quarterly economic report by the American Institute of CPAs (AICPA).
The Personal Financial Satisfaction Index (PFSi) is based on the AICPA’s own economic data and US governmental information, and considers several indicators that measure financial pleasure and pain.
The pleasure portion of the PFSi consists of the PFS 750 Market Index of the 750 largest companies based on market capitalization on the US markets. It doesn’t include mutual funds and exchange-traded funds. The pleasure portion also includes data from the AICPA’s CPA Outlook Index, home equity, and job openings.
Painful factors include inflation, personal taxes, loan delinquencies, and underemployment.
So, how’d we do?
The second quarter results indicate a 7.3 point increase over last year’s second quarter and a 7.5 point increase over the first quarter. Combined, the results put the index within 3.8 percent of its record high in the fourth quarter of 2006.
Further, the pleasure index rose 5.6 points (or 9.3 percent) year over year. Not only has the pleasure index been rising during the last five quarters, it has set record highs for the last three quarters, according to the report.
Contributing to the rising pleasure factors are increased job openings, which rose 7.4 percent year-over-year and home equity that’s up 7.1 percent. Overall, the year-over-year gain showed a 9.4 percent in the PFS 750 Market Index and 14.6 percent increase in the CPA Outlook Index.
Likewise, painful economic factors aren’t hurting as much, the report shows. Pain index numbers show a 3.8 percent drop year-over-year and a 12.9 percent decrease over the first quarter of 2017.
Inflation, one of the pain economic factors, shows a 50.3 percent increase over a year ago but a 35.2 percent decrease over the first quarter of 2017.
Every other factor decreased year-over-year and quarter-over-quarter, particularly in the annual comparisons. Loan delinquencies, for example, dropped 18.7 percent over last year and 5.9 percent since last quarter.
“While there is not much data pointing to a recession, investors should be mindful that their attitudes about investing can signal a market direction,” Leonard Wright, CPA/PFS, a member of the AICPA PFS Credential Committee, said in an AICPA announcement about the findings. “When everyone becomes bullish about investing, markets tend to get frothy and adjust downward. To safeguard against taking on too much risk, make sure your investments are tied to an investment policy statement and that your money is managed to your risk-tolerance level.”
About Terry Sheridan
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.