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The personal satisfaction of the average American has taken a tumble along with the economy in the initial impact of the coronavirus pandemic, causing the biggest drop in more than 10 years.
In fact, according to the American Institute of CPAs' Q1 2020 Personal Financial Satisfaction index (PFSi), a quarterly economic gauge using data from the Bureau of Labor Statistics and Federal Reserve Board of Governors to measure the personal financial standing of a typical American, it's the biggest drop since the Great Recession—Q4 of 2009.
The Q1 PFSi fell a whopping 20 points, chiefly because of the market's plummet (the Market index is down 21 percent, or 20.9 points), but also because of the Inflation index, up 33.8 percent or 10.7 points. Logically enough, a rise in inflation causes an increase in financial pain. And according to the report, since inflation is "the most volatile factor contributing to the PFSi," the current absolute levels are so low that "small changes result in large percent gains."
It adds that this particular factor relies on late March data, reflecting the February level Federal Reserve rates before they were cut to near zero.
The news is likely to worsen in the future, however, since the report points out that "[t]he Q1 calculation utilizes economic data that was largely measured before the COVID-19 pandemic began to impact the U.S. economy."
Barring a miracle, and considering the well over 22 million Americans who have filed for unemployment in mid-March alone, with still more on the way—never mind the snafus concerning coronavirus relief checks and inaccessible unemployment benefits and loans—look for even gloomier news in the next quarter.
AICPA points out a few strategies that might help some as the pandemic grinds on. The postponement of the tax deadline for this year means that, for those who have the spare cash to stay afloat without it, they have longer to make a tax-deductible contribution to IRAs and HSAs.
Also, taking advantage of tax planning to use, rather than lose, from losses on stocks—locking in the tax benefits and perhaps even taking advantage of the lower prices to buy back the same stocks (being careful to avoid doing so too quickly after selling, so as to avoid violating "wash sale" rules).
It's also a time when wealth transfer strategies can pay off for the donor, since the value of the gift in a depressed market will be lower.
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Marlene Satter
Marlene Y. Satter has worked in and written about the financial industry for decades.
