Pressure piles on SA household finances - index

Cape Town - The real value of South African households’ net wealth decreased in the second quarter of 2017 to levels last seen in 2014, according to the SA Household Wealth Index by Momentum and Unisa.

According to the index report released on Monday, this means a growing number of SA households will not be able to cope with emergency expenses and will not have sufficient income at retirement.

Momentum and Unisa estimate that value of the net wealth of all SA households amounted to just over R7trn at the end of the second quarter of 2017. This was about R10bn less than at the end of the first quarter 2017, and 0.7% lower than a year ago.

The real value of household net wealth is the difference between the real value of households’ assets  - mostly retirement funds, other financial investments and properties - and their liabilities, which largely include the value of outstanding credit and other debts.

The index found that, over the past three years, the real value of households' assets declined, while their liabilities remained more or less constant.

The net wealth of households declined to an estimated 279.7% of their gross income in the second quarter of 2017, from 284.6% in the first quarter of 2017.

This is less than the 305.2% reached in the second quarter of 2014.

• READ: Bleak future as SA households get poorer - report

Slow economy

The decrease in net wealth could be attributed to slow growth in the domestic economy failing to create both jobs and sufficient returns on household assets, according to the report.

According to Statistics SA, the SA economy grew at an average rate of 1.6% over the past five years, and at only 1.1% over the past three years. South Africa therefore did not benefit strongly from the fact that the global economy expanded at an average of 3.3% over the past five years.

The index report stated that preliminary estimates pointed to the real value of household net wealth recovering somewhat during the third quarter of 2017.

It said this was mainly due to the real value of financial assets increasing, while credit growth remained subdued.

For households’ financial wellness to improve sustainably, they need to improve their decision-making about how much of their income they use to save, spend, insure and repay debt. This would, to some degree, offset the negative effects of political events on the economy, according to Momentum and Unisa.

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