Midterm elections are widely expected to hinge on how Americans are feeling about their finances. So what’s the verdict?
They should be more financially satisfied than ever, at least according to one index that weighs people’s fiscal pain points against their financial pleasures. For the fifth quarter in a row, the typical American’s personal financial satisfaction is estimated to be at an all-time high, a report released this month by the American Institute of CPAs (AICPA) found.
AICPA calculates the “personal-financial satisfaction index” quarterly. The “pleasure” side of equation consists of stock-market performance, home equity per capita, job openings, and the AICPA’s own “outlook” index, which captures CPAs’ optimism about the economy. On the pain side, four factors are considered: inflation, personal taxes, loan delinquencies and underemployment.
AICPA found that in the third quarter of 2018, the personal financial satisfaction index was at a new high (73.9, to be exact, and the methodology can be found here), up two points from the second quarter. Much of the increase was based on record job openings and the stock market’s bullish performance, over the last 9 years, the longest bull run since World War II.
The report looked at the period ending Sept. 30, so it didn’t include the recent volatility that’s had the Dow Jones Industrial Average DJIA, -1.19% and S&P 500 SPX, -1.73% charging through peaks and valleys. Even so, some people fear that the growth over the last few years can’t last, said Mark Astrinos, an AICPA member and founder of San Francisco-based Libra Wealth. “Fiscal policy and the overall economy are top of mind as we enter midterm elections.”
And yet only 38% of Americans say their finances have improved since the 2016 election, according to a separate study released Thursday by personal-finance website Bankrate, while 17% say they have gotten worse, and 45% say they are about the same. The U.S. economy has continued to improve since Trump was elected in 2016 with low unemployment and, except for recent months, a strong performance on the markets, but people remain skittish about the future.
U.S. consumer sentiment also cooled a bit in late September, although the index remained at a 14-year high. The final reading of the University of Michigan’s consumer-sentiment index in September was 100.1, above August’s level of 96.2, according to the data released last month. The preliminary reading was 100.8. However, this is only the third time the index has topped 100.0. So why are people feeling conflicted?
The stock market has little effect on many Americans’ finances
Only about half of Americans are exposed to equities, typically through their retirement accounts, and only about 14% directly own individual stocks, according to the Federal Reserve. And those that do own stock are generally higher income. “America is one country with 160 million tiny economies, one for each household,” said Clinton Key, a lead researcher on financial security and mobility at the Pew Charitable Trusts, a Philadelphia-based public policy research organization.
Numbers only tell part of the story
Of course, estimating how people are probably feeling is different from gauging their actual feelings. Pew researchers have been interviewing people around the country about their financial well-being. They’ve gotten a mix of responses, Key said. Some Americans are feeling increasingly optimistic, especially because of the improving job market. Others say they haven’t personally benefited. “When they looked at their household’s balance sheets, they saw less room to breathe,” Key said.
Opinions differ based on politics
Not everyone agrees on whether the economy is improving. Those feelings tend to run along partisan lines. Some 60% of Republicans say the economy has improved under President Trump, compared to only 29% of Democrats, according to the survey released last week by Bankrate. They’re worried about their slowly growing wages or, according to other surveys, they’re scared about not having enough retirement or emergency savings.
How to take control
Astrinos, the AICPA member, said he’s been fielding a lot of questions from his clients about things they don’t have control over, and those questions have escalated as elections approach. He reminds them to focus on what they can control. “Take this time to evaluate a few of the things you do have control over such as your savings rate, tax planning opportunities, the status of your emergency reserve and make sure your debt levels are at a healthy level,” Astrinos said.
The State of the American Wallet
MarketWatch’s State of the American Wallet feature is another way of looking at how people are faring financially. It tracks changes in net worth, debt, savings rates and cost of living, based on data released periodically by various government agencies. It’s not all encouraging: The median household income in the U.S. was $61,372 in 2017, up 1.8% after accounting for inflation, according to the U.S. Census Bureau.
The numbers show that while the net worth of the wealthiest households have climbed in recent years, the bottom income-earners have flat-lined. In fact, wages for the 1% hit an all-time high last year. Meanwhile the average wage for the top 1% of income earners hit $719,000 per year in 2017, a post-recession high, according to a recent report from the Economic Policy Institute, a progressive, nonprofit think tank.
Get a daily roundup of the top reads in personal finance delivered to your inbox. Subscribe to MarketWatch's free Personal Finance Daily newsletter. Sign up here.
