Market Gains Help Financial Satisfaction Reach 24-Year High

Increased gains in the stock market and a high number of available jobs has Americans experiencing their highest level of personal financial satisfaction over the past 24 years, according to new data.

The AICPA’s third-quarter 2017 Personal Financial Satisfaction Index (PFSi) eclipses the previous record reached since the fourth quarter of 2006, right before the Great Recession.

Used as a quarterly economic gauge that measures the personal financial standing of a typical American, the PFSi is based on the difference between the Personal Financial Pleasure Index and the Personal Financial Pain Index. Pleasure factors include the AICPA’s PFS 750 Market Index, comprised of the 750 largest companies by market capitalization trading on the U.S. market, excluding mutual funds and ETFs. Additional components are the AICPA’s CPA Outlook Index, as well as Real Home Equity Per Capita and Job Openings Per Capita. Pain factors include inflation, personal taxes, loan delinquencies and underemployment.

The third-quarter PFSi measured 25.9, a 2.6-point increase from the prior quarter due to a modest gain (2.1 points) in the pleasure index and a slight decrease (0.5 point) in the pain index. A positive reading indicates that Americans are feeling more financial pleasure than pain.

The PFS 750 Market Index continues to be the biggest contributor to the pleasure index, with the trend beginning in 2009 and continuing in the third quarter, as the component increased to a record high for the third quarter in a row. The report notes that the U.S. economy has continued its steady expansion as corporate earnings are improving and interest rate policy remains accommodating.

Despite the sunny outlook, the AICPA cautions that it is important to maintain financial safeguards. “While we all benefit from the surge of capital markets and real estate growth, it’s prudent that our financial health safeguards remain in place. This means ensuring that you rebalance portfolios to reduce risk and maintaining adequate cash reserves for when economic times are more challenging,” says Mark Astrinos, CPA/PFS and member of the AICPA PFS Credential Committee.

Meanwhile, a combined decrease in loan delinquencies and a drop in the inflation index helped lower the pain index by 0.5 points from the previous quarter, which contributed to the overall improvement in the PFSi, the report explains.

While the current reading of delinquencies on mortgages (3.93%) is below the peak delinquency rate (11.26%) set in the spring of 2010, it is still above what was typical between 1994 through 2003 (2.12%). The AICPA further warns that loan delinquencies may increase in the fourth quarter due to the recent hurricanes and wildfires across the U.S. that left more damage and affected a much larger area than Hurricane Katrina did in 2005.

The AICPA began issuing the PFSi quarterly in January 2015, with the data for the index tracking back to 1994.

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