consumer trends

Inflation Increase Deflates Americans’ Financial Satisfaction

Rising Inflation Offsets Historic Stock Market Highs: Q1 2017 PFSi

NEW YORK, April 27, 2017 – As interest rates continue their steady climb from historic lows, Americans are starting to feel the impact on their finances.

In fact, increased inflation outweighed historic stock market highs and increases in home equity, leading to a 1.6 point decline in the Q1 2017, Personal Financial Satisfaction Index (PFSi).

A 3.2 point increase in the Personal Financial Pain Index, only partially offset by a 1.7-point Pleasure Index increase, led to the quarter-over-quarter PFSi decline. Despite the decline from the previous quarter, the PFSi is still firmly positive – at 17.5 points – meaning that Americans are feeling a good degree of personal financial satisfaction.

Despite the continued increase in inflation, the Q1 2017 PFSi results are strong in many areas. Home values in many areas are rebounding to pre-crisis levels and there have been sharp increases in New York City, Dallas, Seattle and San Francisco. In addition, a slight growth in job openings with a high number of available positions in the education and health services industries and particularly strong growth in the real estate sector.

Loan delinquencies, including mortgages, came in lower this quarter and have experienced a substantial turnaround since their high water mark in 2010. In addition, while underemployment was stagnant this quarter it is still significantly above the pre-recession norms. While all of these are good signs for consumers’ financial satisfaction, the historic highs in the stock market were the single biggest contributor to the PFSi’s positive value this quarter. Particularly, information technology and health care stocks experienced sharp gains from Q4 2016.

Investors seeking significant gains

“The recent stock market rally has put an exclamation point on the post-recession bull market, with investors seeing significant gains both quarter-over-quarter and year over year,” said Leonard Wright, CPA/PFS, member of the AICPA’s Personal Financial Specialist (PFS) Credential Committee. “With stocks at or near historic highs, it’s a great opportunity for Americans to take a look at their asset mix and consider rebalancing their portfolio and locking in recent gains.”

With inflation ticking up both quarter over quarter and year over year, it's important to maintain perspective.

Interestingly, the PFSi has tracked with Americans overall feelings about their personal finances. A March 2017 telephone survey, conducted by Harris Poll on behalf of the American Institute of CPAs (AICPA) among 1,018 adults, found that Americans who were satisfied with their personal finances (64 percent) outweighed those who did not feel satisfied (35 percent) by nearly a two-to-one margin. However, there is room for improvement as only 13 percent feel completely satisfied with their personal finances while 16 percent are not at all satisfied.

Despite the overall positive results of the PFSi, Americans’ personal financial satisfaction could be imperiled by rising inflation, which has been leading the rise in the Personal Financial Pain Index. In fact, rises in inflation run the risk of outpacing gains in hourly wages, essentially erasing workers’ raises. Adding to the pain caused by inflation, personal taxes rose up slightly – and have been increasing slowly, but sporadically since 2009 – and are now in line with levels seen before the great recession.

Year-over-year statistics show a more positive story, with the PFSi up 2.1 points compared to Q1 2016. This increase has been driven primarily by gains in the stock market, captured in the PFS 750 Market Index and increases in economic optimism, captured in the CPA Outlook Index – both proprietary AICPA data. In addition, there has been a substantial decrease in loan delinquencies. However, the single biggest factor holding the PFSi back from greater heights is the sharp rise in inflation, which has moved from near-historic lows closer to a more traditional level.

Personal financials have improved

According to the March AICPA survey, many Americans (41 percent) have felt an improvement in their personal financial satisfaction over the past year, with 14 percent saying their personal financial satisfaction has improved substantially and 27 percent saying it improved slightly. Only 17 percent felt a decline in their financial satisfaction, with 10 percent saying it was slight and 8 percent saying it was substantial. The remaining 40 percent say it stayed about the same compared to the same time last year.

“With inflation ticking up both quarter over quarter and year over year, it’s important to maintain perspective. Inflation is still in line with the Federal Reserve’s goal of around 2 percent, but the situation is definitely worth monitoring,” said Mark Astrinos, CPA/PFS, a member of AICPA’s PFS Credential Committee. “However, the recent increases in interest rates has left investors with concern for their fixed income investments, such as longer duration bonds. There is a silver lining for long-term investors. Higher rates will result in increased opportunities for higher interest-based income going forward.”

The PFSi represents the financial standing of a typical American. It is calculated as the Personal Financial Pleasure Index minus 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. 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. The pain components are inflation, personal taxes, loan delinquencies and underemployment.

If the PFSi readings are positive, Americans are feeling more financial pleasure than pain. Declines, even minor ones, do not necessarily mean Americans are feeling financially negative overall, but do signal a shift in momentum.

Additional information on the PFSi can be found here.




This Harris Poll was conducted by telephone within the United States 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. Figures for age, sex, race/ethnicity, education, region and household income were weighted (using data from the Current Population Survey) where necessary to bring them into line with their actual proportions in the population.
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 and other professionals 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 PFP services in the highest professional manner.
CPA financial planners are held to the highest ethical 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, enabling them to gain competence and confidence in PFP disciplines.
About the Association of International Certified Professional Accountants
The Association of International Certified Professional Accountants (the Association) combines the strengths of the American Institute of CPAs (AICPA) and The Chartered Institute of Management Accountants (CIMA) to power opportunity, trust and prosperity for people, businesses and economies worldwide. It represents 650,000 members and students in public and management accounting and advocates for the public interest and business sustainability on current and emerging issues. With broad reach, rigor and resources, the Association advances the reputation, employability and quality of CPAs, CGMAs and accounting and finance professionals globally.
About the American Institute of CPAs
The American Institute of CPAs (AICPA) is the world’s largest member association representing the CPA profession, with more than 418,000 members in 143 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, offers specialized credentials, builds the pipeline of future talent and drives professional competency development to advance the vitality, relevance and quality of the profession.
The AICPA maintains offices in New York, Washington, DC, Durham, NC, and Ewing, NJ.