Published by Gbaf News
Posted on April 27, 2018
The extreme volatility that brought the stock market down in the first quarter of 2018 was narrowly offset by the positive effects of lower taxes. This allowed Americans’ personal financial satisfaction to advance to a new record high, according to the AICPA’s Q1 2018 Personal Financial Satisfaction Index (PFSi) released today. This is the first quarter to reflect the impact of the Tax Cuts and Jobs Act and in it, the PFSi increased 1.5 points (6.2 percent) over Q4 2017 to reach 26.1, a new all-time high. This positive reading indicates that the average American is feeling a strong sense of financial well-being.
The positive gains to the overall PFSi were buoyed by personal taxes decreasing 4.2 points (7.3 percent) from the prior quarter which gave many working Americans an increase in their paycheck. The personal taxes component is one of four factors that make up the Personal Financial Pain Index. Thanks largely to the decline in personal taxes, the Personal Financial Pain Index measured 43.7 in Q1 2018, a 1 point (2.1 percent) decrease from the prior quarter. The lower overall value of the Pain Index helped to boost the modest improvement in the PFSi.
Even though taxes declined in the first quarter, they continue to be the largest contributor to financial pain, now for the eighth quarter in a row. The tax component of the Pain Index is particularly important when measuring financial satisfaction because it is a distinct factor that many Americans recognize. When income taxes change, Americans tend to notice because it impacts their take home pay. The personal taxes value uses information from the Bureau of Labor Statistics on income tax, tax on realized net capital gains and taxes on personal property.
“As Americans appreciate an increase to their take home pay, they should recognize that the changes in tax law went far beyond a reduction to income taxes,” said Dave Cherill, CPA, member of the AICPA Personal Financial Planning Executive Committee. “There are countless provisions in the new law that can help middle class families create and secure wealth for themselves and future generations, but many of the new rules expire at the end of 2025. Educating oneself and planning should start now.”
The Q1 2018 Personal Financial Pleasure Index measured 69.8, which is a slight 0.6 point (0.8 percent) increase over the prior quarter. Market volatility was uncharacteristically absent for 2017 but it returned dramatically during the first quarter of 2018. The PFS 750 Market Index declined for the first time since Q3 2015, dropping 3.5 points (3.9 percent) from its Q4 2017 level to 85 and ending its streak of successive record high quarters at four. Despite this, it remains the leading contributor to the Pleasure Index.
“As Americans begin to feel increased market volatility, it’s important to resist the urge to time the market and instead remain focused on a long-term financial plan,” said Robert Westley, CPA/PFS, member of the AICPA Personal Financial Specialist Credential Committee. “A strong financial plan will help to align an investor’s portfolio with their personal financial goals and corresponding time horizons. As the need to draw from a portfolio approaches, investors should begin decreasing their portfolio’s risk. This is especially important for Americans near or at retirement age since bull markets, like the one we have been experiencing, often cause investors to overlook the importance of holding safer investments in their portfolios.”
The other three factors of the Pleasure Index all improved, most notably job openings per capita which increased 3.4 points (4.9 percent) over the last quarter and set a new all-time record as overall job openings totaled 6.3 million in January. The greatest job availability was in professional and business services, transportation, warehousing, utilities, and construction.
The PFSi ‘s numbers are in sync with Americans’ overall attitudes about their personal finances. An April 2018 telephone survey, conducted on behalf of the AICPA by The Harris Poll, found that more than two-thirds of Americans (68 percent) are satisfied with their personal finances which is a slight increase from a year ago when the 2017 study found 64 percent were financially satisfied. In contrast, a little more than a quarter of Americans (28 percent) said they are not financially satisfied, with 14 percent saying not at all. This is a drop from a year ago when slightly more than a third of Americans (35 percent) reported that they were not financially satisfied, with 16 percent saying not at all.
Additionally, more than twice as many Americans (39 percent) said that their personal financial satisfaction has improved over the past year, compared to those who said it has declined (17 percent). However, it was status quo for a sizable number as 41 percent said satisfaction levels remained about the same.
Additional Findings from the Q1 2018 PFSi:
Additional information on the PFSi can be found at: www.aicpa.org/PFSi.
Personal Financial Satisfaction Index Methodology
The Personal Financial Satisfaction Index (PFSi) is the result of two component sub-indexes. It is calculated as the difference between the Personal Financial Pleasure Index and the Personal Financial Pain Index. These are comprised of four equally weighted factors, each of which measure the growth of assets and opportunities, in the case of the Pleasure Index, and the erosion of assets and opportunities, in the case of the Pain Index.
The Harris Poll Methodology
The cited survey was conducted on behalf of AICPA by The Harris Poll by telephone within the United States between April 5 and 8, 2018, among 1,014 adults (510 men and 504 women aged 18 and over) including 414 interviews from the landline sample and 600 interviews from the cell phone sample. The 2017 study was conducted by telephone between March 24 and 27, 2017, among 1,018 adults (505 men and 513 women aged 18 and over) including 518 interviews from the landline sample and 500 interviews from the cell phone sample. Results were weighted (using data from the Current Population Survey) where necessary to bring them into line with their actual proportions in the population.
The extreme volatility that brought the stock market down in the first quarter of 2018 was narrowly offset by the positive effects of lower taxes. This allowed Americans’ personal financial satisfaction to advance to a new record high, according to the AICPA’s Q1 2018 Personal Financial Satisfaction Index (PFSi) released today. This is the first quarter to reflect the impact of the Tax Cuts and Jobs Act and in it, the PFSi increased 1.5 points (6.2 percent) over Q4 2017 to reach 26.1, a new all-time high. This positive reading indicates that the average American is feeling a strong sense of financial well-being.
The positive gains to the overall PFSi were buoyed by personal taxes decreasing 4.2 points (7.3 percent) from the prior quarter which gave many working Americans an increase in their paycheck. The personal taxes component is one of four factors that make up the Personal Financial Pain Index. Thanks largely to the decline in personal taxes, the Personal Financial Pain Index measured 43.7 in Q1 2018, a 1 point (2.1 percent) decrease from the prior quarter. The lower overall value of the Pain Index helped to boost the modest improvement in the PFSi.
Even though taxes declined in the first quarter, they continue to be the largest contributor to financial pain, now for the eighth quarter in a row. The tax component of the Pain Index is particularly important when measuring financial satisfaction because it is a distinct factor that many Americans recognize. When income taxes change, Americans tend to notice because it impacts their take home pay. The personal taxes value uses information from the Bureau of Labor Statistics on income tax, tax on realized net capital gains and taxes on personal property.
“As Americans appreciate an increase to their take home pay, they should recognize that the changes in tax law went far beyond a reduction to income taxes,” said Dave Cherill, CPA, member of the AICPA Personal Financial Planning Executive Committee. “There are countless provisions in the new law that can help middle class families create and secure wealth for themselves and future generations, but many of the new rules expire at the end of 2025. Educating oneself and planning should start now.”
The Q1 2018 Personal Financial Pleasure Index measured 69.8, which is a slight 0.6 point (0.8 percent) increase over the prior quarter. Market volatility was uncharacteristically absent for 2017 but it returned dramatically during the first quarter of 2018. The PFS 750 Market Index declined for the first time since Q3 2015, dropping 3.5 points (3.9 percent) from its Q4 2017 level to 85 and ending its streak of successive record high quarters at four. Despite this, it remains the leading contributor to the Pleasure Index.
“As Americans begin to feel increased market volatility, it’s important to resist the urge to time the market and instead remain focused on a long-term financial plan,” said Robert Westley, CPA/PFS, member of the AICPA Personal Financial Specialist Credential Committee. “A strong financial plan will help to align an investor’s portfolio with their personal financial goals and corresponding time horizons. As the need to draw from a portfolio approaches, investors should begin decreasing their portfolio’s risk. This is especially important for Americans near or at retirement age since bull markets, like the one we have been experiencing, often cause investors to overlook the importance of holding safer investments in their portfolios.”
The other three factors of the Pleasure Index all improved, most notably job openings per capita which increased 3.4 points (4.9 percent) over the last quarter and set a new all-time record as overall job openings totaled 6.3 million in January. The greatest job availability was in professional and business services, transportation, warehousing, utilities, and construction.
The PFSi ‘s numbers are in sync with Americans’ overall attitudes about their personal finances. An April 2018 telephone survey, conducted on behalf of the AICPA by The Harris Poll, found that more than two-thirds of Americans (68 percent) are satisfied with their personal finances which is a slight increase from a year ago when the 2017 study found 64 percent were financially satisfied. In contrast, a little more than a quarter of Americans (28 percent) said they are not financially satisfied, with 14 percent saying not at all. This is a drop from a year ago when slightly more than a third of Americans (35 percent) reported that they were not financially satisfied, with 16 percent saying not at all.
Additionally, more than twice as many Americans (39 percent) said that their personal financial satisfaction has improved over the past year, compared to those who said it has declined (17 percent). However, it was status quo for a sizable number as 41 percent said satisfaction levels remained about the same.
Additional Findings from the Q1 2018 PFSi:
Additional information on the PFSi can be found at: www.aicpa.org/PFSi.
Personal Financial Satisfaction Index Methodology
The Personal Financial Satisfaction Index (PFSi) is the result of two component sub-indexes. It is calculated as the difference between the Personal Financial Pleasure Index and the Personal Financial Pain Index. These are comprised of four equally weighted factors, each of which measure the growth of assets and opportunities, in the case of the Pleasure Index, and the erosion of assets and opportunities, in the case of the Pain Index.
The Harris Poll Methodology
The cited survey was conducted on behalf of AICPA by The Harris Poll by telephone within the United States between April 5 and 8, 2018, among 1,014 adults (510 men and 504 women aged 18 and over) including 414 interviews from the landline sample and 600 interviews from the cell phone sample. The 2017 study was conducted by telephone between March 24 and 27, 2017, among 1,018 adults (505 men and 513 women aged 18 and over) including 518 interviews from the landline sample and 500 interviews from the cell phone sample. Results were weighted (using data from the Current Population Survey) where necessary to bring them into line with their actual proportions in the population.
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