Cape Town - South African households’ real net wealth declined in 2016 by 1.7% or R119.2bn, according to the latest Momentum/Unisa Wealth Report.
Real net wealth per household also diminished by R18 382 or 4.3% at the end of last year. This puts the figure at a similar level as at the end of 2012.
The drop in household wealth means that fewer households will be able to retire with sufficient income to meet their current living standards. Once they retire, they will have to make adjustments, such as moving from a house they owned to a rented property, or even deprive themselves of meals.
READ: Ratings downgrade will impact a 'generation' of employees - CEO
“At the same time this places a larger burden on government to increase its social expenditure with a slower growing tax base,” the report said.
Another consequence of the decline in household net wealth is that households are exposed to a state of financial unwellness, as they can’t provide sufficiently for emergency or unexpected expenses, such as large medical expenses, motor vehicle accidents, theft and the loss of income.
“These things have the potential to turn a seemingly good financial situation into a nightmare.”
As a result of this exposure, households often have to revert to borrowing money to meet the unexpected expenses and therefore use the share of income that could have been used to save for retirement to repay loans.
Driving the decline
According to the report, the fiscal and monetary policies implemented by
government have played a significant role in the erosion of households’ real
net wealth, as well as a non-performing economy on the financial
behaviour of households.
Increasing income and wealth taxes have been consuming a growing portion of households’ gross income, while over indebtedness and higher interest rates mean a larger share of household gross income is used to repay debt.
READ: SA's shocking debt spiral
“The net result is that households sacrificed a growing portion of their savings – normally used to accumulate assets and net wealth – in order to consume more and comply with government policies.”
Although real net wealth declined, the real value of households liabilities increased marginally by R3.5bn or 0.3% by the end of 2016. These liabilities include credit extended by banks, non-bank vehicle financiers, retailers, micro-lenders, development finance institutions, educational institutions and telecommunication companies.
Despite the increase in liabilities, the ratio of household debt to disposable income continued declining – from 74.9% at the end of 2015 to 74.4% at the end of 2016.
“This was mainly as a result of slow credit growth and a slight increase in disposable income. This ratio has been in decline since the first quarter of 2008 when it was at a high of 90%,” according to the report.
Household assets also decreased by the end of 2016, compared to the previous year – by 1.4% or R115.7bn.
These assets include residential property and financial assets, such as retirement savings and other investments.
The report showed that the real value of households’ residential property stock is estimated to have increased by 0.8% over the course of 2016 – a small increase primarily as a result of new investments in residential assets, as opposed to an increase in house prices.
READ: Junk status: Hard times ahead for consumers
The real value of financial assets decreased by 2.4% over the year, mainly as a result of a decline in the real value of assets invested in shares on the JSE. “For instance, in real terms the JSE All Share Index was 5.7% lower at the end of 2016 in comparison with a year before,” the report said.
The value of assets in retirement funds – including contributions to and growth in investment products – was also 2.2% lower by the end of 2016.
The continuing decline in net wealth and the real value of assets per household have policy implications that will make it difficult for government to continue with the redistribution of income and wealth policies, the report said.
“For such policies to succeed and contribute to faster economic growth and job creation the real value of household wealth needs to increase at a speedy rate.”
This, however, hinges on among other things a stable exchange rate, lower consumer price inflation, stable interest rates, faster economic growth and job creation, less borrowing for consumption purposes and less reliance on income tax increases to finance fiscal debt, the report concluded.Read Fin24's top stories trending on Twitter: