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Jan. 26, 2019, 12:18 p.m. EST

This one thing is making Americans less satisfied with their finances

The Personal Financial Satisfaction Index released by the American Institute of CPAs is divided into ‘pleasure and pain’

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By Jacob Passy


Getty Images/iStockphoto
For the first time in two years, Americans’ satisfaction with their personal finances appears to have worsened.

For the first time in two years, Americans’ satisfaction with their personal finances appears to have worsened. And stock market volatility is the likely culprit.

In the fourth quarter of 2018, the average American’s personal-financial satisfaction fell off an all-time high, a report released Thursday by the American Institute of CPAs found. For five straight quarters before that, Americans were estimated to have grown more pleased with the state of their wallets.

The AICPA’s Personal Financial Satisfaction Index is broken into two parts: Pleasure and pain. The factors that drive the pleasure index are those that help consumers grow their assets, such as stock-market performance and job openings. The pain index is based on factors that erode assets and opportunities, including inflation and taxes.

For the fourth quarter, the overall index came in at 30.9, a 1.4-point drop from the previous quarter. That represents the second largest quarterly decline in seven years. However, the index was still in the positive territory, meaning that when it comes to Americans’ finances pleasure is still outweighing pain.

Also see: Why home buyers could be forced to shrink their budgets in 2019

Stock market volatility is a damper on an otherwise rosy financial outlook

A 4.1-point decrease in the pleasure index drove the decline in AICPA’s overall index. And the leading cause of that was a 13.4-point slump in the PFS 750 Market Index, a proprietary stock index from AICPA that tracks the 750 largest companies trading on U.S. stock exchanges.

In the fourth quarter, the S&P 500 /quotes/zigman/3870025/realtime SPX +0.64%  and the Dow Jones Industrial Average /quotes/zigman/627449/realtime DJIA +0.70%  fell 14% and 12% respectively, erasing the gains they had made throughout 2018.

Most financial advisers will warn their clients to pay little attention to the stock market’s day-to-day foibles and keep only the long-term picture in mind. But research has shown that some consumers are especially prone to being unhappy with the state of their finances in response to stock-market volatility. In particular, people who have little confidence in managing their finances are more prone to dissatisfaction in such instances.

Given the fact that many Americans struggle to take the most basic of steps to shore up their finances — by building up emergency savings — it’s no surprise then that the market’s rollercoaster ride has people on edge.

And there are signs that Americans may be growing even more unsure about their financial situation. In December, American consumers’ confidence in the economy fell for the second straight month.

Read more: How many private jets are expected to land in Davos this week?

Tax season could present more concerns

Once again, the biggest contributor to Americans’ financial pain was personal taxes, which had been the case in eight of the last 10 quarters. While the stress caused by taxes is actually down from a year ago, there’s a chance that could change in 2019.

Early in 2018, the IRS updated the withholding tables as a result of changes introduced by the Trump administration’s Tax Cuts and Jobs Act of 2017 tax rate changes, Julie Welch, a certified public accountant and member of the American Institute of CPAs’ Personal Financial Planning Executive Committee, said in the report.

“In many cases, the federal withholding decreased which resulted in Americans seeing a bit more money in each paycheck,” she said. “However, those that didn’t check their withholding may be surprised by smaller than usual refund, or worse yet, a balance due.”

The Government Accountability Office has estimated that more than one in five taxpayers with wages didn’t withhold enough money for taxes last year. Consequently, those Americans may end up owing the government money rather than receiving a tax refund over the next few months.

And tax refunds are taking on a renewed importance in light of the government shutdown. Many of the 800,000 Americans who are furloughed or working without pay may need to rely on that money to pay back past-due rent and loan payments. And many others simply may need that money to boost savings or pay down ballooning debts.

Taxes aren’t the only stressor. While inflation wasn’t as big of a concern in the fourth quarter than it was in the previous one, it may still be on many people’s minds. While more Americans are getting jobs these days, driving decreases in the rates of unemployment and underemployment, real wages have declined.

In other words, even though many people’s take-home pay has grown, the cost of living has increased more quickly, erasing any benefits of the higher income.

Nevertheless, there are silver linings from the AICPA report. In particular, home equity continued to grow through the fourth quarter, as real-estate values kept on rising (albeit at a slower pace.) And fewer Americans are falling behind on loan payments.

/quotes/zigman/3870025/realtime
US : S&P Base CME
2,792.67
+17.79 +0.64%
Volume: 2.09B
Feb. 22, 2019 4:48p
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/quotes/zigman/627449/realtime
US : DJ-Index
26,031.81
+181.18 +0.70%
Volume: 279.76M
Feb. 22, 2019 4:48p
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Jacob Passy is a personal-finance reporter for MarketWatch and is based in New York.

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