Americans’ financial well-being reaches its highest level in 10 years

Americans enjoyed a 10-year high in their personal financial standing during the second quarter of 2017, according to the AICPA’s Personal Financial Satisfaction Index (PFSi).

The index weighs positive and negative economic factors that contribute to the personal financial well-being of the average American. A positive rating means that financial pleasure in the form of market gains, job openings, and other factors outweighs financial pain in the form of inflation, loan delinquencies, underemployment, and personal taxes.

The PFSi reached 24.1 for the second quarter of 2017—its highest standing since the end of 2006 and a 7.3-point increase over the second quarter of 2016. Much of the change can be attributed to a decrease in inflation and a strong stock market, as measured by the AICPA’s PFS 750 Market Index. The PFS 750 came in 6.8 points higher than the previous year, due in part to growth in financial services and information technology.

The index also showed a 4.8-point gain in job openings per capita compared with the previous year, particularly in the leisure and hospitality industries. Government jobs also have high vacancy rates, having reopened after an initial hiring freeze implemented by President Donald Trump’s administration earlier this year.

The continued upward trend of the market creates an opportunity for Americans to review their long-term financial plans, experts said.

“While it’s always a good idea for individuals to review their long-term financial plan on a regular basis, changes in the macroeconomic landscape make this practice even more important,” said Mark Astrinos, CPA/PFS, a member of the AICPA PFS Credential Committee. “Given that the market has been steadily climbing for some time, it would be prudent for investors to review their asset allocation to ensure that they’re managing the risk of their portfolios.”

Along with positive factors trending up, several negative influences on Americans’ financial satisfaction weakened in the second quarter.

Personal taxes declined slightly, down 1.4 points from the previous year. Loan delinquencies dropped 2.7 points from the previous quarter and 9.9 points compared with the previous year.

Most notably, inflation dropped 16.5 points on the PFSi blended inflation index compared with the previous quarter, measuring at 1.4% nationally. This is below the Federal Reserve target of 2% but could change in light of a May announcement from the Fed that the target interest rate will go up.

Rising interest rates sound like bad news to some Americans, as those who carry balances on credit cards or who have adjustable-rate mortgages would see their interest payments go up. But others may feel the rewards of a rate increase, Astrinos said.

“The most immediate benefit for savers is that they will earn more interest on their savings,” he said. “For a long time, we’ve been in a historically low-interest-rate environment where cash and short-term investments were not yielding very much.”

Even with positive trends, individual investors should proceed thoughtfully, personal financial planners advised.

“While there is not much data pointing to a recession, investors should be mindful that their attitudes about investing can signal a market direction,” said Leonard Wright, CPA/PFS, a member of the AICPA PFS Credential Committee. “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.”

Additional information about the PFSi can be found at aicpa.org/PFSi.

—Samiha Khanna is a freelance writer based in Durham, N.C. To comment on this article, email editorial director Ken Tysiac.