Finance Optimism Index

The CBA/AOL Finance Optimism Index measures Americans’ level of optimism about their personal finances. The index tracks across four important variables: optimism about personal financial future, worry about current finances, whether news about personal finances has been positive, and worry about how the economy and politics affect personal finances. The index is measured continuously, and results are published on a monthly basis.

-3.0
-6.8 M/M

In the first month of the index, October 2013, the level of financial optimism was very low as Americans encountered the government shutdown. The value of the index was -24.6, impacted by news of political gridlock and the resulting worry about how the current political and economic situation would affect personal finances.

As the country emerged from the shutdown in November 2013, the index increased considerably, rising by 16 points to -8.8. Financial optimism rose as news of the shutdown died down and Americans became less worried about how the political situation would affect personal finances. In December 2013, the index was relatively flat at -7.8.

At the start of the new year in January 2014, the index increased to +4.0, the first time the index has been positive and an increase of 12 points from the prior month. The increase in the index was driven by Americans seeing more positive news about personal finances, potentially marking the impact of rising stock prices and a decline in the unemployment rate.

In February 2014, the index declined to -2.6, a drop of 6.6. The decrease in financial optimism was mainly driven by a perception that news about Americans’ personal finances wasn’t as positive. Possible factors include the slow start to the month in the stock market and rising prices for gasoline.

In March 2014, the index dropped for the second month in a row to -6.2, a decline of 3.6.  This came as a result of Americans becoming more concerned about their current personal financial situation. With the impending Federal Income Tax filing deadline in April, consumers were likely taking stock of their financial situation and potentially facing a looming tax bill. In April 2014, the index increased slightly to -4.8.  In May 2014, the index again creeped upward to -4.0 as the stock market saw gains and May jobless claims were at their lowest since 2007.

In June 2014, the index moved into positive territory for the first time since January.  The index rose 7.8 points to +3.8, almost matching the highest value of the index since launch. More Americans viewed news about their finances as positive, and optimism about Americans' personal financial future is at an all-time high.  Continued increases in the stock market and employment gains likely contributed to the increase in Americans' optimism about their personal finances.

In July 2014, the index declined back to a negative level.  The index dropped 6.8 points to -3.0 as the stock market weakened in the last week of the month and news of instability and unrest in the world impacted American optimism. A lower percentage of people thought that news about American's finances had been positive, likely due to events in the Ukraine, Middle East, and Africa.

With the weakening of consumer’s personal finance optimism, February also saw a decrease in mortgage applications and a release of data showing a greater amount of household debt. Household debt may include mortgages and car loans, but the real danger for consumers and financial institutions is the exploding amount of student loan debt. With over $1 trillion in federal student loans to be repaid, and employment and wages stagnant, this is bound to have a depressing effect on consumer outlook and the economy at large.

March 2014 saw another decrease in financial optimism by American consumers. Sluggish job growth and the national tax season are leading factors for a less optimistic outlook. Pile on swiftly rising food prices and many Americans are feeling the squeeze on their budgets.

In April, drivers of a lack of overall consumer optimism about personal finances can be linked to a number of issues. Currently, consumers are facing unusually high grocery costs and gasoline prices, which remain around $4 a gallon and have risen 12 straight weeks through April. This puts a squeeze on consumers who may be reevaluating summer vacation plans.

In May, more consumers reported positive news about Americans’ personal finances, coming on the heels of better job numbers and the approaching summer season, where employment generally increases with seasonal jobs.

In June, survey respondents reported the news they have been hearing about American’s finances has been more positive than in months past. Americans were also less worried about their current financial situation. This may be linked to better corporate earnings and higher stock market levels. In addition, existing home sales hit an eight-month high in June.

The drop of 6.8 points in July follows positive results in June, which saw the first positive number for the index since January 2014. Contributing factors to this decline include turmoil across the globe, increased concerned about personal financial outlook, and a decrease in positive economic news.

Survey Questions

The CBA/AOL Finance Optimism Index is derived from agreement with the four statements below.

In July 2014, despite continued good news on employment, the percentage of Americans who agree “the news about American’s finances has been positive” declined. Economic news in the US was relatively stable, but optimism may have been affected by overall world news related to events in Ukraine, the Middle East, and Africa.  The stock market also declined in the last week of July.  In addition to recent news being viewed as less positive, there was a corresponding slight decline in optimism about personal financial future and a slight increase in worry about current financial situation.

I am optimistic about my personal financial future

I am worried about my current financial situation

The news I’ve been hearing in the past few weeks about Americans’ personal finances has been generally positive

I am worried that the current economic and political situation is going to affect my personal finances

Note: Statistically significant differences from month to month are indicated in green and red.

Methodology

The CBA/AOL Finance Optimism Index is calculated based on 4 survey questions asked to a random national sample of approximately 1,600 US Online Adults Ages 18+ every month. AOL and Ipsos continuously field the questions through the AOL/Ipsos MediaCT Brand Tracking Survey, with results reported on a monthly basis. The data is weighted by age, gender, income, region, and household size to demographically represent the adult US online population.  The survey results have a 2.5-point margin of error at the 95% confidence level. Tracking of the index survey questions began in October 2013.

Survey respondents are asked to rate how much they agree with each of the following four statements on a four-point scale (Strongly Agree, Somewhat Agree, Somewhat Disagree, and Strongly Disagree):

  1. I am optimistic about my personal financial future
  2. I am worried about my current financial situation
  3. The news I’ve been hearing in the past few weeks about Americans’ personal finances has been generally positive
  4. I am worried that the current economic and political situation is going to affect my personal finances

To derive the CBA/AOL Finance Optimism Index, each respondent’s average level of optimism is calculated based on their responses to all four statements. Each respondent is then categorized as optimistic or pessimistic based on this average. The average accounts for the difference between “strongly” held and “somewhat” held opinions by assigning “strong” opinions a greater impact on the respondent’s average level of optimism. The difference in the direction of the sentiment of the four statements is also accounted for, i.e., agreement with statements A and C is considered optimistic, whereas agreement with statements B and D is considered pessimistic.*

The value of the index for each month is calculated as the percentage of respondents who are net pessimistic subtracted from the percentage of respondents who are net optimistic in that month.  The index can range from +100 (all respondents optimistic) to -100 (all respondents pessimistic).

Note:

It is unlikely that the index will fall in the extreme positive and negative ends of the -100 to +100 range, since all Americans are not likely to be optimistic or pessimistic in a given month.

While 0 is the midpoint of the index’s range, it does not necessarily represent the average level of optimism. In studies that measure Americans’ optimism on other topics, Americans tend to be more optimistic on average compared to other countries. It is possible that an average level of optimism for Americans will fall on the positive side of the range.

* Each respondent’s ratings for the four statements is assigned a value from 1 to 4, with 4 being the most optimistic rating for that statement and 1 being the most pessimistic rating for that statement. This calculation accounts for the difference in the direction of the sentiment of the four statements. E.g., a respondent that “strongly agrees” with the positive statement “I am optimistic about my personal financial future” is assigned a 4 for that statement.  A respondent that “strongly agrees” with the negative statement “I am worried about my current financial situation” is assigned a 1 for that statement. The 4 point scale also ensures that “strongly” held opinions have a greater impact on the respondent’s average level of optimism than “somewhat” held opinions. E.g., a respondent that “strongly agrees” with the statement “I am optimistic about my personal financial future” is assigned a 4 for that statement. A respondent that “somewhat agrees” with that statement is assigned a 3. 

A respondent’s average level of optimism is the mean of his 4 statement scores. Respondents with average level of optimism above or equal to the midpoint of the 4-point scale (≥ 2.5) are considered optimistic, and respondents with average level of optimism below the midpoint of the scale (<2.5) are considered pessimistic.

Downloads

Launch of Optimism Index

The CBA/AOL Finance Optimism Index launched in April 2014. This report provides insight into why the measure of financial optimism is meaningful to the financial services industry, how financial optimism influences consumer behavior, and the first 5 months of results.

Contact

For more information on the CBA/AOL Finance Optimism Index, please contact FinanceOptimism@teamaol.com.

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