Americans’ financial well-being continues upward trend

By Samiha Khanna

Americans’ personal financial satisfaction increased steadily throughout 2017, reaching a 24-year peak for the fourth quarter of 2017, according to the AICPA’s Personal Financial Satisfaction Index (PFSi).

The PFSi is calculated as the difference between two subindexes: the Personal Financial Pleasure Index, which measures positive factors such as market gains and job opportunities, and the Personal Financial Pain Index, which weighs negative factors such as taxes and inflation. The PFSi has risen steadily for the past seven quarters.

As in recent quarters, market gains were the biggest factor contributing to the financial status of the average American. The fourth quarter closed with a 5.2% increase in the PFS 750 Market Index, a proprietary stock index developed by the AICPA, which paralleled record highs in December for all three major U.S. indexes — Nasdaq, S&P 500, and Dow Jones Industrial Average.

“As we move further from the financial crisis, our frame of reference is influenced by the long market upswing and less so by the crisis,” said Brooke Salvini, CPA/PFS, a member of the AICPA Personal Financial Planning Executive Committee. However, she noted, “it is important to avoid chasing returns by following increasing euphoria. The cause and timing of the next market pullback is impossible to predict, but I feel confident one will occur.”

Alongside market gains, the CPA Outlook Index also increased. This measure of CPA executives’ views on the economy and their firms’ prospects for the coming year was also positive, climbing 3.5% from the previous quarter. Meanwhile, home equity inched up 1.7% from the prior quarter.

Not all of the positive factors were trending up. Although job openings per capita have grown steadily for the past year, available employment opportunities dropped 3% from the prior quarter.

Although the Personal Financial Pain Index in the fourth quarter was up a fraction of a percent (0.2%) from the previous quarter, it’s trending downward on a year-over-year basis, dropping 12.1% from the fourth quarter of 2016. Inflation was up by 14.1% from last quarter, while underemployment was down by 8% and loan delinquencies by 1.9%.

Personal taxes were down a mere 1% since the prior quarter, though they were 1.5% higher than in the fourth quarter of 2016. The measure doesn’t reflect the recently enacted Tax Cuts and Jobs Act, P.L. 115-97.

“While the aim of the new tax plan was simplification, the result was more cuts and tweaks to existing tax law, which may introduce more tax planning complexity for the average consumer,” said Mark Astrinos, CPA/PFS, a member of the AICPA PFS Credential Committee.

Taxpayers should be aware that, beginning in 2018, the personal exemption went away, the standard deduction increased, and many itemized deductions such as for mortgage interest changed, he said.

“Consumers should work with a CPA financial planner to determine how they can still maximize their tax benefits in light of these changes,” he said.

Samiha Khanna is a freelance writer based in Durham, N.C. To comment on this article or to suggest an idea for another article, email Ken Tysiac, a JofA editorial director.


Get your clients ready for tax season

Upon its enactment in March, the American Rescue Plan Act (ARPA) introduced many new tax changes, some of which retroactively affected 2020 returns. Making the right moves now can help you mitigate any surprises heading into 2022.


Black CPA Centennial, 1921–2021

With 2021 marking the 100th anniversary of the first Black licensed CPA in the United States, a yearlong campaign kicked off to recognize the nation’s Black CPAs and encourage greater progress in diversity, inclusion, and equity in the CPA profession.