Financial satisfaction fell to five-year low amid coronavirus, says AICPA
The American Institute of CPAs reported Thursday that its Personal Financial Satisfaction Index declined 55 percent in the second quarter of the year, a level not seen since 2015, as the COVID-19 pandemic continued to ravage consumer finances.
The Q2 2020 Personal Financial Satisfaction index (PFSi) measures 15.2, an 18.5-point decline from Q1, making it the biggest quarterly drop in the history of the index. The previous record decline was a 16.3-point drop in Q4 2007. The financial satisfaction of average Americans is now similar to levels seen in early 2015 on the index.
A big factor behind that decline is the historic increase in unemployment, which reached levels not seen since the Great Depression a few months ago. While the unemployment rate rose last month and in May, it is likely to fall again as businesses that reopened start closing again as the novel coronavirus ravages states across the country.
The quarter-over-quarter PFSi decline reflected the 246 percent (75 point) increase in underemployment. That factor more than doubled from the previous quarter, exceeding its former peak during the fourth quarter of 2009 to reach a new record high. The Q2 level measures data through the middle of June.
The second biggest contributor to the PFSi decline from the prior quarter was the AICPA’s CPA Outlook Index, which indicated a 68 percent (35 point) drop. The CPA Outlook Index echoes the expectations of CPA executives in the year ahead for their companies and the U.S. economy, based on a survey conducted from May 5 to 27. Its decrease was mainly driven by a sharp decline in optimism about the U.S. economy’s outlook over the next 12 months. Factoring into the PFSi decrease was a 32 percent (25 point) drop in the job openings factor which uses U.S. Bureau of Labor Statistics data that measures through April.
“Finding yourself unemployed or experiencing a sudden loss of income from your business warrants revisiting your financial plan immediately and updating your monthly budget,” said Dave Stolz, chair of the AICPA’s PFS Credential Committee, in a statement Thursday. “It is essential to understand the available COVID-related government assistance such as business loans from the Paycheck Protection Program and federal unemployment benefits and incorporate them into a revised financial plan.”
The situation is likely to grow even worse, with the enhanced unemployment benefits of up to $600 per week from the CARES Act set to expire at the end of this month. Congress has not yet reached an agreement on extending the benefits beyond the end of July, and the amount of the benefit is likely to be reduced even if it is extended.
In contrast, at the start of this year, Americans were experiencing record high levels of personal financial satisfaction. While the PFSi experienced a record decline in the second quarter of this year, its current value of 15.2 is still 55.5 points above its all-time low of -40.3 set in the third quarter of 2011, when Americans were still emerging from the lingering impact of the Great Recession.
According to a separate survey of AICPA members who are CPA financial planners, they have been busy helping clients make sense of the provisions in the CARES Act. The vast majority of financial planners (90 percent) advised clients on Paycheck Protection Program loans, while 79 percent advised their clients on economic impact payments, also known as “stimulus checks.” Fifty percent of the survey respondents indicated that they had helped clients file for Federal Pandemic Unemployment Compensation.