According to the AICPA’s Q1 2018 Personal Financial Satisfaction Index (PFSi). The personal financial satisfaction of Americans reached a new high because of the positive effects of lower taxes even though the stock market was brought down by extreme volatility in the first quarter of 2018.
The PFSi increased 1.5 points (6.2 percent) compared to Q4 2017 and touched 26.1 which is a new all-time high. additionally, this was also the first quarter where the impact of tax cuts could be seen. A strong sense of financial wellbeing is being felt by the average American – indicates this positive reading.
The average American was given an increase in their paychecks because of the decrease in personal taxes by 4.2 points (7.3 percent) abd this was the driver for the overall positive gains of the PFSi. The Personal Financial Pain Index is composed of four factors of which the personal tax is a component. the Personal Financial Pain Index measured 43.7 in Q1 2018, a 1 point (2.1 percent) decrease from the prior quarter because of the decline in personal taxes. this boosted the modest improvement in the PFSi.
Despite the reduction in taxes in the first quarter, it remained one of the major contributor to financial pain for the eighth straight quarter. The tax component is a distinct factor that many Americans recognize and therefore it forms an important aspect for calculations to measure financial satisfaction. Because take home money is impacted by changes in in income taxes, therefore Americans tend to take notice of it.
“As Americans appreciate an increase to their take home pay, they should recognize that the changes in tax law went far beyond a reduction to income taxes,” said Dave Cherill, CPA, member of the AICPA Personal Financial Planning Executive Committee. “There are countless provisions in the new law that can help middle class families create and secure wealth for themselves and future generations, but many of the new rules expire at the end of 2025. Educating oneself and planning should start now.”
Compared to the previous quarter there was a slight increase – 0.6 point (0.8 percent), in the Q1 2018 Personal Financial Pleasure Index which came at 69.8. while there was a long period of stability throughout 2017, in the first quarter of 2018, there was much volatility in the stock market. this resulted in a drop for the first time since Q3 2015 in the PFS 750 Market Index which touched 85 with a drop of 3.5 points (3.9 percent) compared to the earlier quarter.
“As Americans begin to feel increased market volatility, it’s important to resist the urge to time the market and instead remain focused on a long-term financial plan,” said Robert Westley, CPA/PFS, member of the AICPA Personal Financial Specialist Credential Committee. “A strong financial plan will help to align an investor’s portfolio with their personal financial goals and corresponding time horizons. As the need to draw from a portfolio approaches, investors should begin decreasing their portfolio’s risk. This is especially important for Americans near or at retirement age since bull markets, like the one we have been experiencing, often cause investors to overlook the importance of holding safer investments in their portfolios.”
(Adapted from Businesswire.com)