A long-running index shows that financial happiness in the U.S. is slipping, despite continued economic strength.
The American Institute of CPA’s quarterly Personal Financial Satisfaction Index, released Thursday, shows a 3.6% decline from the previous reading — which also had posted a slight dip. At the same time, however, the latest reading of 37.3 remains near the all-time high of 38.8 that was reached in the first three months of 2019.
“Economic fundamentals haven’t really deteriorated that much, but when people see a lot of negative news, it affects their psyche,” said Michael Landsberg, a CPA and member of the AICPA Personal Financial Planning Executive Committee.
In simple terms, the index is a combination of two opposing groups of data: “pleasure” indicators that measure the growth of assets and opportunities, and “pain” points that measure their erosion.
The latest reading showed a 2.2% dip on the pleasure side, which outweighed a slight improvement (0.8%) on the pain side that came from a reduction in inflationary pressure.
The index was pushed lower due largely to a decline in the economic outlook portion of the calculus, which captures the expectations of CPA executives. About 42% express optimism about the U.S. economy’s outlook over the next 12 months, down from 57% — which is where it had been for the previous three quarters. In early 2018, it reached 79%.
“For years and years there’s been growth, but it is important to remember that economies are cyclical,” Landsberg said. “Executives are seeing where we are in the market cycle and it’s making them a little more cautious.”
The economy has continued chugging away for 10 years — making it the longest-running economic expansion in U.S. history. And while growth is anticipated to be lower this year at 2.1% — down from 3% in 2018 — with continued slowing expected in 2020 and 2021, Landsberg said there are no immediate red flags.
For instance, unemployment remains near historic lows at 3.5%, and job openings continue to exceed the number of job seekers. The stock market, while volatile, also is up for the year, with the S&P 500 index posting a 19.9% gain through Wednesday. The Dow Jones industrial average, likewise, is up 15% for the year.
“There’s some noise out there, but overall, I think people are still more content than they’ve been at some points,” Landsberg said.
In fact, the current index reading of 37.3 is nearly 5 points higher than the 32.8 it posted a year ago.
The lowest reading on the index was in 2011, when it hit negative 41.35. Before that, it had peaked in the third quarter of 2007. At that point, the largest contributor to the pleasure side of the equation was home equity, which tanked when housing prices slid, delinquencies surged and the Great Recession gripped the country.
While a recession will hit at some point — exactly when is anyone’s guess — experts say the best defense is preparation.
“Anyone who is feeling nervous should make sure they have a financial plan in place,” Landsberg said. “You don’t want to be reactive.”
That means having emergency savings and making sure your investments accurately reflect your risk tolerance — a combination of how well you can stomach market volatility and how long until you need the money. For example, if you’re nearing retirement or already withdrawing from money earmarked for it, make sure your your assets are allocated properly so your portfolio doesn’t have more risk in it than it should, Landsberg said.
Additionally, keep an eye on your debt. As of June 30, total U.S. household debt stood at $13.86 trillion — $1.2 trillion more than the previous peak of $12.68 trillion in the third quarter of 2008, according to the Federal Reserve Bank of New York.