Americans’ financial well-being reaches 8-year high

By Courtney L. Vien

Americans’ financial happiness has reached its highest levels since the recession, according to the second quarter Personal Financial Satisfaction Index (PFSi), which was released today by the AICPA.

An increased number of job openings, a rise in home values, and a decrease in loan delinquencies helped the PFSi gain 1.9 points over the first quarter. The PFSi, a measure of the financial standing of the average American, now measures 15.0, its highest level since 2007 and 18.2 points higher than it was during the second quarter last year.

The recent increase in the PFSi, however, was the smallest in the past four quarters, perhaps the latest sign that the economy may be losing momentum. Retail sales fell 0.3% in June. The U.S. Commerce Department, which announced those results Tuesday, had initially expected a slight gain over May. 

Inflation to rise?

The rise in the PFSi reflects recent improvements in the U.S. housing market, particularly an increase in real home equity per capita and a decline in mortgage loan delinquencies. Other major factors contributing to the PFSi’s rise include improved job growth and reduced inflation.

Historically low inflation, partly driven by a drop in oil prices, has been the factor most responsible for the PFSi’s rise in the past year.

On Wednesday, Federal Reserve Chair Janet Yellen said that some of the indicators of economic sluggishness seen in recent months would likely be short-lived, and that as the labor market improves, inflation will accelerate toward the Fed’s 2% goal.

“Prospects are favorable for further improvement in the U.S. labor market and the economy more broadly,” Yellen said. “Low oil prices and ongoing employment gains should continue to bolster consumer spending, financial conditions generally remain supportive of growth, and the highly accommodative monetary policies abroad should work to strengthen global growth.

“In addition, some of the headwinds restraining economic growth, including the effects of dollar appreciation on net exports and the effect of lower oil prices on capital spending, should diminish over time. As a result, the [Federal Open Market Committee] expects U.S. GDP growth to strengthen over the remainder of this year and the unemployment rate to decline gradually.”

Pain vs. pleasure

The PFSi is calculated as the difference between two subindexes: the Personal Financial Pain Index and the Personal Financial Pleasure Index. Positive scores indicate Americans are experiencing financial satisfaction, while negative scores suggest they are experiencing financial pain.

The Personal Financial Pain Index comprises four equally weighted factors: inflation, personal taxes, loan delinquencies, and underemployment. The Personal Financial Pleasure Index also comprises four factors: real home equity per capita, job openings per capita, the AICPA’s CPA Outlook Index, and the proprietary PFS 750 Market Index.

During the second quarter, the Pain Index fell by 1.6 points while the Pleasure Index rose 0.3 points.

Courtney L. Vien ( is a JofA associate editor.

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