Although inflation has been rising, stock market gains and a decrease in unemployment have boosted the American Institute of Certified Public Accountants (AICPA) Personal Financial Satisfaction Index (PFSi) to the highest level it has ever reached in the 24 years AICPA has been conducting this survey.
In fact, the index has been rising steadily over the past seven quarters. AICPA suggests that the data could even be stronger next quarter, as the potential impact of the Tax Cuts and Jobs Act was not reflected in the data for the fourth quarter of 2017.
AICPA calculates the index as the Personal Financial Pleasure Index minus the Personal Financial Pain Index. When the readings are greater than zero, this indicates that Americans are feeling more financial pleasure than pain. For the fourth quarter of 2017, the index stood at 26.9, up 1.2 points from the third quarter.
The Personal Financial Pleasure Index, at 69.2, is up 1.3 points from the previous quarter. This is the fourth quarter in a row that this index has increased. The Personal Financial Pain Index, at 42.3, is 12.1 percent lower than the previous year but 0.2 percent higher than the preceding quarter.
“Americans should continue to assess their personal risk tolerance and work with their financial advisers to determine how best to approach investment decisions in 2018,” says David Cherill, a member of the AICPA Personal Financial Planning Executive Committee. “Many of my clients have more confidence than ever in the market, while others are scared to death and have already taken considerable gains off the table. The potential for volatility remains, but this market has thus far been immune to many of the factors that have resulted in large swings in the past.”
The PFS 750 Market Index, the biggest contributor to the Pleasure Index, rose 5.2% in the fourth quarter to a record high for the fourth successive quarter. AICPA notes that Nasdaq, the S&P 500 and Dow Jones all experienced record highs in December. “The current level of the PFS 750 Market Index is a robust 15.6% above the Q4 2016 reading as the steady expansion of the U.S. economy continued and corporate earnings improved,” AICPA says. “The strongest market performers in the final quarter of the year were the consumer discretionary sector, which gained just over 11%, followed closely by technology, which advanced almost 10%.”
Personal taxes were the leading overall contributor to financial pain for the seventh quarter in a row. The measurement of this index rose 1.5% from the fourth quarter of 2016 but a 0.9% decrease from the previous quarter.