Financial Pleasure Continues to Outweigh Financial Pain, but Momentum has Slowed
NEW YORK (Jan. 15, 2016) – Spurred by significant reductions in inflation and loan delinquencies, the 2015 fourth quarter PFSi (Personal Financial Satisfaction Index) released today by the American Institute of CPAs (AICPA) shows that Americans personal financial satisfaction has increased substantially from a year ago.
The index registered 15.9 in the fourth quarter, an almost 134 percent increase from the 2014 fourth quarter level of 6.8.
However, there was only a 0.1 increase in the PFSi from the previous quarter, indicating the momentum of increased personal financial satisfaction has slowed.
The PFSi is calculated as the difference between the Personal Financial Pleasure Index and the Personal Financial Pain Index. The slight gain from the prior quarter was due to a 0.8 decline in the Pleasure index offset by a 0.9 point decline in the Pain index.
The Pain Index
The pain index is at a level of 43.5, which is 19.1 percent lower than a year ago. This is led by a 68 percent decline in the inflation component from the previous year – the largest change in the period for any component of the pain or pleasure index. Inflation began to fall in mid-2014, and has been extremely low for all of 2015. The drastic decline in oil prices has been a major factor in low inflation rates.
“With the Federal reserve increasing its rate by 25 basis points in the fourth quarter of 2015, inflation will continue to be a focus for the central bank,” said Jimmy J. Williams, CPA/PFS, a member of AICPA’s National Accreditation Commission. “Consumers should watch oil price fluctuations, as that has a strong impact on inflation and could become an important consideration in the decision to continue raising rates in 2016.”
A 23 percent reduction in loan delinquencies from the previous year, as well as a 15 percent decrease in underemployment also helped drive down the Pain Index.
The Personal Financial Pleasure index registered 59.4, 2 percent lower than a year ago. The decline from the prior year was driven by 17 percent drop in the CPA Outlook Index and a 10 percent drop in the PFS 750 Market Index, with both of these components showing volatility over the past year. These declines were partially offset by 11 percent gains in both home equity and job openings.
Jobs & Housing
“Job openings in most sectors were stable and achieved some growth, with notable exceptions in the extractive and drilling industries,” said Williams. “In addition, there has been increasing stability in the housing markets nation-wide for the most part, which has helped drive up prices.”
The U.S. housing market as a whole made considerable progress in 2015, as the volatile bounce off the bottom experienced from 2012 through 2014 gave way to a more stable environment. Specifically, San Francisco, Los Angeles, and Boston currently have historically high valuations, while Las Vegas, Chicago, and Atlanta still have problems stemming from significant proportions of properties with underwater mortgages.
The CPA Outlook Index decreased in the fourth quarter of 2015 based on declines in the index components related to the U.S. economy, organizational optimism and expansion, and revenue and profit expectations. The CPA Outlook Index found CPAs who serves as CEOs and CFOs have sharply reined in expectations for profit and revenue in 2016, with anticipated growth for those two key performance indicators at their lowest level since the end of 2012.
The PFSi weighs a variety of economic factors to determine the financial standing of a typical American. It is the result of calculating the difference between the Personal Financial Pleasure Index and the Personal Financial Pain Index. The PFSi, calculated as the Personal Financial Pleasure Index minus the Personal Financial Pain Index represents the financial standing of a typical American, uses both proprietary and normalized official U.S. Government data.
Pleasure factors include the proprietary PFS 750 Market Index, comprised of the 750 largest companies by market capitalization trading on the U.S. markets, excluding ADRs, mutual funds and ETFs. The other components are the AICPA’s CPA Outlook Index, Real Home Equity Per Capita and Job Openings Per Capita. Pain factors include inflation, personal taxes, loan delinquencies and underemployment.
Additional information on the PFSi can be found here.
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.
About the AICPA’s PFP Division
The AICPA’s Personal Financial Planning (PFP) Section is the premier provider of information, tools, advocacy, and guidance for CPAs who specialize in providing estate, tax, retirement, risk management, and investment planning advice to individuals, families and business owners. The primary objective of the PFP Section is to support its members by providing resources that enable them to perform valuable PFP services in the highest professional manner.
CPA financial planners are held to the highest standards and are uniquely able to integrate their extensive knowledge of tax and business planning with all areas of personal financial planning to provide objective and comprehensive guidance for their clients. The AICPA offers the Personal Financial Specialist (PFS) credential exclusively to CPAs who have demonstrated their expertise in personal financial planning through testing, experience and learning.
About the AICPA
The American Institute of CPAs (AICPA) is the world’s largest member association representing the accounting profession, with more than 412,000 members in 144 countries, and a history of serving the public interest since 1887. AICPA members represent many areas of practice, including business and industry, public practice, government, education and consulting.
The AICPA sets ethical standards for the profession and U.S. auditing standards for private companies, nonprofit organizations, federal, state and local governments. It develops and grades the Uniform CPA Examination, and offers specialty credentials for CPAs who concentrate on personal financial planning; forensic accounting; business valuation; and information management and technology assurance. Through a joint venture with the Chartered Institute of Management Accountants (CIMA), it has established the Chartered Global Management Accountant (CGMA) designation which sets a new standard for global recognition of management accounting.
The AICPA maintains offices in New York, Washington, DC, Durham, NC, and Ewing, NJ.