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Polls suggested a Clinton win; a no Brexit vote and no looming recession in 2007 – all were contrary to what people actually felt.

The election of Donald Trump as the next president of the U.S. is another proof that what people say in response to surveys does not necessarily match how they feel about the issue.  Polls taken close to the Election Day indicated a slight lead for Hilary Clinton in the presidential elections, but that was not the case.

In June of 2016, polls in the United Kingdom indicated that more people are going to reject a departure from the European Union.  In reality, more people voted to leave the EU, thus initiating the Brexit.  Here again, what people in the U.K. told pollsters was not necessarily how they actually felt about the issue.

Similarly, the disparity between what people say in response to confidence surveys and the way they actually behave with their money is a known phenomenon in behavioral finance.  One of the reasons consumer confidence indices were late to report on the looming recession in 2007 was because consumers remained optimistic in reporting to surveys, but acted contrary in real life.

A true measurement of financial confidence among consumers is achieved by measuring what consumers actually do with their money (objective) rather than ask them how they feel, which is subjective.  The Money Anxiety Index measures consumer financial confidence by observing actual financial behavior. 

The Money Anxiety Index is produced by Dr. Dan Geller, a behavioral finance scientist and the author of the book Money Anxiety.  The index measures the level of consumers’ financial worry and stress based on their spending and savings pattern.  Historically, the Money Anxiety Index fluctuated from a high of 135.3 during the recession of the early 1980s, to a low of 38.7 in the mid 1960s.  

 
 
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The Money Anxiety Index shows a nearly equal chance for Clinton and Trump of winning the elections.

The Money Anxiety Index has a perfect track record for predicting presidential reelections.  If the November Money Anxiety Index is lower than January, the incumbent president is likely to win the reelections.  In January of this year, the Money Anxiety Index stood at 60.4, compared to 60.2 in November – a 0.2 index point lower, but within the margin of error.

Although Hillary Clinton is not up for reelection, her highly visible role as Secretary of State and her close affiliation to the Obama administration, make her run for the presidency a quasi reelection campaign.  In all 9 presidential reelections in the past 50 years, the incumbent won only when the Money Anxiety Index declined during the reelection year.  Conversely, presidents running for reelection lost when the Money Anxiety Index increased between January and November.

The most recent example is Obama’s reelection.  In January of 2012, the Money Anxiety Index stood at 90.9, and declined to 87.1 by November – a reliable indication that President Obama will be reelected based on the track record of the Money Anxiety Index to predict reelection outcome. In the past 50 years, incumbent presidents, running for reelection, won only when the Money Anxiety Index decreased between January and November of the reelection year. 

Aside from Obama’s reelection, there were 8 reelection campaigns in the last 50 years, and only 5 of them were successful.  All 5 presidents, who won reelection, were successful in lowering the Money Anxiety index between January and November of the reelection year.  President George W. Bush won reelection when during his reelection year, from January to November 2004, the Money Anxiety Index decreased from 59.6 to 58.2 – a decrease of 1.4 index points.  Similarly, President William J. Clinton won reelection when during his reelection year, from January to November 1996, the Money Anxiety Index decreased from 69.2 to 68.8 – a decrease of 0.4 index points. 

Conversely, President James E. Carter was not reelected to a second term.  During his reelection year, from January to November 1980, the Money Anxiety Index increased from 80.3 to 98.4 – an increase of 18.1 index points.  Similarly, President George H.W. Bush was not reelected to a second term.  During his reelection year, from January to November 1992, the Money Anxiety Index increased from 81.7 to 85.7 – an increase of 4.0 index points.

Historically, President Lyndon B. Johnson was elected after serving the remaining term of John F. Kennedy.  During his election year, from January to November 1964, the Money Anxiety Index decreased from 63.0 to 48.5 – a decrease of 14.5 index points.  The same was the case with the successful reelection of Richard M. Nixon.  During his reelection year, from January to November 1972, the Money Anxiety Index decreased from 71.5 to 64.5 – a decrease of 7.0 index points.  Similarly, President Ronald W. Reagan won a second term. During his reelection year, from January to November 1984, the Money Anxiety Index decreased from 91.8 to 84.4 – a decrease of 7.4 index points. 

On the other hand, President Gerald R. Ford, who run for reelection after serving the remaining term of President Nixon. During his reelection year, from January to November 1976, the Money Anxiety Index increased from 90.2 to 93.2 – an increase of 3.0 index points.