Don’t call it a comeback, but Americans are pretty happy about their finances for the first time since before the recession.
In the second quarter of 2017, Americans experienced the highest levels of personal financial satisfaction since the fourth quarter of 2006, according to a study by the American Institute of CPAs. They say that a high number of job openings and a decrease in inflation has led to more opportunities for personal financial growth, as well as success in the stock market.
Unfortunately, this growth can’t be expected to carry on forever.
“In conversations with our clients, we’ve been telling them to be aware of the long-term trend. People naturally overweight the current situation and forget that it is part of a cycle,” says David Stolz with AICPA. “Americans shouldn’t let their present situation allow them to drift from their plan of reducing debt and adding to their savings. It’s always wise to save some acorns in the summer because we know eventually winter is coming.”
The AICPA uses two measures to determine how people feel about their personal finances. They measure financial pain against financial pleasure to determine Americans’ overall satisfaction.
The biggest factor that played into a jump in the pleasure index from 64.6 in the previous quarter to 66 in the second quarter of 2017, was the success in the top 750 publicly traded businesses. This trend has been steadily increasing for the past several years, according to the written report.
This goes hand-in-hand with the strong gains and growth in the information technology industry, followed by consumer discretionary and health care. On the flip side, the energy and telecom sector experienced losses.
Job openings also played a major role in the jump in financial pleasure. The most openings were among lower-paying sectors such as leisure, hospitality, accommodation and food services — all of which saw vacancies rise to all-time highs. In addition, government job openings are at their second-highest level of all-time, in part because the federal hiring freeze was lifted in April, resulting in many open positions, the report says.
It’s not just the pleasure index that’s been rising, though. A consistent drop in the pain index has led to more success.
This factor dropped 6.2 points from the previous quarter to 41.8 — the lowest it’s been in the past 10 years.
A drastic decrease in inflation played a key role in the pain index dropping as the U.S. economy has continued to show signs of strength, leaving the Great Recession behind.
Personal taxes still give people their biggest financial stressor, followed by delinquencies on loans. This is something that Robert A. Westley with AICPA says Americans should get a handle on now, while they are comfortable with their financial situation.
“Consumers should keep in mind that the Fed will likely continue to boost interest rates, making it more expensive for banks and ultimately, the consumer to borrow money,” says Westley. “In advance of future rate hikes, Americans should look to pay down their credit cards and other high-interest bearing debt as much as possible. Any future interest rate increase will result in higher monthly payments and therefore less disposable income and less financial satisfaction.”
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