Underemployment spurs record drop in financial satisfaction

The personal financial satisfaction of Americans continued its drop in the second quarter of 2020 amid the ongoing coronavirus pandemic, according to the AICPA’s latest Personal Financial Satisfaction Index (PFSi). A surge in underemployment contributed most to a record 55% decline in the quarterly economic indicator, which measures the financial position of the average American.

Data collected in mid-June shows underemployment increased 246% between the first and second quarters of this year, surpassing a previous peak reached in the fourth quarter of 2009.

The PFSi is measured as the difference between two subindexes: the Personal Financial Pleasure Index and the Personal Financial Pain Index. Both subindexes comprise four equally weighted factors. The Pleasure Index is calculated based on job openings, home equity, the CPA Outlook Index, and the PFS 750 Market Index. The Pain Index is calculated based on underemployment, loan delinquencies, taxes, and inflation.

The CPA Outlook Index — a composite index that measures the expectations of American CPA executives based on factors including economic optimism and their projections for their organizations’ profits and revenue — was the second biggest factor in the PFSi’s decline. It dropped 67.9% from last quarter.

COVID-19 is also troubling CPAs who serve small businesses. CPAs are on the frontlines in helping small businesses with their finances, so they’re seeing firsthand how those businesses are being affected by the pandemic, said Kelley Long, CPA/PFS, a consumer financial education advocate for the AICPA.

“We are worried about what will happen when the federal unemployment assistance runs out or if many states have to scale back to strict shelter-in-place orders time and again,” she said.

For the second quarter of 2020, the PFSi measured 15.2, a level last seen in 2015. Many first-quarter PFSi factors were assessed in February 2020, before the economic impact of the coronavirus pandemic was fully felt in the United States, so the second quarter results may paint a clearer picture of its effects.

“The COVID-19 pandemic is an unprecedented health care crisis, followed very closely by a severe personal finance crisis, especially for vulnerable populations,” Long said. “Those who are able to preserve cash should do so, while I’d also encourage all Americans to look out for each other’s physical and financial health.”

As measured for the second-quarter PFSi, job openings dropped by 31.7% while home equity increased 1.2% over the previous quarter. Loan delinquencies remained steady quarter-to-quarter, while taxes fell 29.5% and inflation dropped after the Federal Reserve set interest rates near zero.

A major rebound amid a record decline

The second-quarter PFSi is still more than 55 points higher than its all-time low, set in 2011. One bright spot is the PFS 750 Market Index, which bounced back from a depressed reading the previous quarter, gaining 21.3%.

The Market Index is an AICPA proprietary stock index made up of the 750 largest companies trading in the United States. It excludes exchange-traded funds, American depositary receipts, and mutual funds, and it’s adjusted for per capita and inflation.

More information about the PFSi is available at aicpa.org/PFSi.

— Megan Hart is a freelance writer based in Wisconsin. To comment on this article or to suggest an idea for another article, contact Courtney Vien, a JofA senior editor, at Courtney.Vien@aicpa-cima.com.