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Cape Town - A new wealth index appears to show South African households enjoyed a significant surge in the nominal value of their net wealth, despite the fact that real economic growth decelerated sharply to 0.7% in the third quarter of 2013 (from 3.2% in the second quarter).
However, this rosy picture is not quite accurate and caution is the watchword here.
Momentum and Unisa's third quarter 2013 Household Wealth Index aims to give a snapshot of where South Africans are in terms of personal wealth, and what they can expect in the future.
Analysis shows that the nominal value of South African households’ net wealth increased at a rapid pace of 29.6% quarter over quarter seasonally adjusted and annualised growth rate, compared to the second quarter.
According to the index, the following is noteworthy:
• The nominal value of households’ net wealth amounted to R6 836.5bn during the third quarter of 2013 – almost R430bn more compared to the second quarter.
However, it must be noted that the strong acceleration in the value of households’ net wealth during the third quarter followed a sluggish quarter over quarter seasonally adjusted and annualised growth rate growth rate of 1% during the second quarter – which in value terms is equal to an increase of only R15bn.
• The strong showing in nominal household net wealth can be ascribed to nominal household assets accelerating by more than double the pace at which nominal household liabilities increased. Calculations show that nominal household assets accelerated at apace of 25.8% during the third quarter compared to the 11.1% (quarter over quarter seasonally adjusted and annualised) of nominal household liabilities.
• Nominal household assets amounted to R8 418bn in the third quarter of 2013 – some R470bn more than the R7 948bn registered in the second quarter of 2013. Nominal household liabilities amounted to R1 581bn in the third quarter compared to the preceding quarter’s R1 540bn.
Professor Bernadene De Clercq of Unisa's Personal Finance Research Unit said it is important to note that these developments in South African households’ balance sheets were not driven by improving domestic economic fundamentals.
“The sharp growth in household assets was caused by improving international financial market sentiment and a weakening rand exchange rate, which combined to increase the value of households’ financial assets. Strong growth in South African household net wealth should not be expected.”
International economic developments
Accelerating economic growth in a number of large economies in which South African firms own interests, coupled with improving financial market sentiment, had a positive impact on the value of South African households’ financial assets.
This in turn contributed to a strong increase in their net wealth position during the third quarter of 2013, and South African shares outperformed the other major asset classes. The JSE All-share Index was 12.1% higher at the end of the third quarter compared to the end of the second quarter.
Household net wealth
Household net wealth increased by R208bn in the third quarter of 2013 to R4 379bn. Real household liabilities increased by R10bn and real household assets by R218bn.
Household assets
About 70% of household assets comprise financial assets such as investments in retirement funds, direct investments in the stock and bond exchanges and other unlisted companies, as well as cash in the bank and in money market funds.
In the third quarter of 2013, excess savings and liabilities are estimated at R37bn, which is lower than the R52.1bn of the second quarter. This suggests a decline in both deposit holdings and contractual savings by households during the third quarter.
Household liabilities
Although mainly driven by credit, liabilities such as outstanding municipal bills have also contributed to the growth in household liabilities. Compared to a year ago, the value of household liabilities was 10% higher.
This shows that household indebtedness is remaining around the 76% level, suggesting that they are struggling somewhat to reduce their debt burden.
De Clercq said food and interest rate hikes and petrol price increases are not making the situation any easier for the consumer.
“Experts are recommending that we reduce our exposure to debt as much as possible because the weak rand and inflationary pressures are going to take a bite out of our pockets in the future.
“Individuals who want to improve their financial wellness need to save more and closely examine their spending habits to understand the triggers that place them in financial difficulty.
"Wealth is not just about how much you earn. It’s about how you spend and save”.
Momentum's head of marketing and financial wellness Estelle Scholtz-Mare comments there is no doubt that South Africans have been weathering stormy seas over the past six months.
“We have seen strikes, protests, a 50% decline of the rand’s value and recently a 0.5% increase in interest rates. These events will impact our economy and ultimately our personal wealth.
"Focusing on the various indicators that determine personal wealth will help individuals and financial advisers plan and adjust their financial strategies,” said Scholtz-Mare.
However, this rosy picture is not quite accurate and caution is the watchword here.
Momentum and Unisa's third quarter 2013 Household Wealth Index aims to give a snapshot of where South Africans are in terms of personal wealth, and what they can expect in the future.
Analysis shows that the nominal value of South African households’ net wealth increased at a rapid pace of 29.6% quarter over quarter seasonally adjusted and annualised growth rate, compared to the second quarter.
According to the index, the following is noteworthy:
• The nominal value of households’ net wealth amounted to R6 836.5bn during the third quarter of 2013 – almost R430bn more compared to the second quarter.
However, it must be noted that the strong acceleration in the value of households’ net wealth during the third quarter followed a sluggish quarter over quarter seasonally adjusted and annualised growth rate growth rate of 1% during the second quarter – which in value terms is equal to an increase of only R15bn.
• The strong showing in nominal household net wealth can be ascribed to nominal household assets accelerating by more than double the pace at which nominal household liabilities increased. Calculations show that nominal household assets accelerated at apace of 25.8% during the third quarter compared to the 11.1% (quarter over quarter seasonally adjusted and annualised) of nominal household liabilities.
• Nominal household assets amounted to R8 418bn in the third quarter of 2013 – some R470bn more than the R7 948bn registered in the second quarter of 2013. Nominal household liabilities amounted to R1 581bn in the third quarter compared to the preceding quarter’s R1 540bn.
Professor Bernadene De Clercq of Unisa's Personal Finance Research Unit said it is important to note that these developments in South African households’ balance sheets were not driven by improving domestic economic fundamentals.
“The sharp growth in household assets was caused by improving international financial market sentiment and a weakening rand exchange rate, which combined to increase the value of households’ financial assets. Strong growth in South African household net wealth should not be expected.”
International economic developments
Accelerating economic growth in a number of large economies in which South African firms own interests, coupled with improving financial market sentiment, had a positive impact on the value of South African households’ financial assets.
This in turn contributed to a strong increase in their net wealth position during the third quarter of 2013, and South African shares outperformed the other major asset classes. The JSE All-share Index was 12.1% higher at the end of the third quarter compared to the end of the second quarter.
Household net wealth
Household net wealth increased by R208bn in the third quarter of 2013 to R4 379bn. Real household liabilities increased by R10bn and real household assets by R218bn.
Household assets
About 70% of household assets comprise financial assets such as investments in retirement funds, direct investments in the stock and bond exchanges and other unlisted companies, as well as cash in the bank and in money market funds.
In the third quarter of 2013, excess savings and liabilities are estimated at R37bn, which is lower than the R52.1bn of the second quarter. This suggests a decline in both deposit holdings and contractual savings by households during the third quarter.
Household liabilities
Although mainly driven by credit, liabilities such as outstanding municipal bills have also contributed to the growth in household liabilities. Compared to a year ago, the value of household liabilities was 10% higher.
This shows that household indebtedness is remaining around the 76% level, suggesting that they are struggling somewhat to reduce their debt burden.
De Clercq said food and interest rate hikes and petrol price increases are not making the situation any easier for the consumer.
“Experts are recommending that we reduce our exposure to debt as much as possible because the weak rand and inflationary pressures are going to take a bite out of our pockets in the future.
“Individuals who want to improve their financial wellness need to save more and closely examine their spending habits to understand the triggers that place them in financial difficulty.
"Wealth is not just about how much you earn. It’s about how you spend and save”.
Momentum's head of marketing and financial wellness Estelle Scholtz-Mare comments there is no doubt that South Africans have been weathering stormy seas over the past six months.
“We have seen strikes, protests, a 50% decline of the rand’s value and recently a 0.5% increase in interest rates. These events will impact our economy and ultimately our personal wealth.
"Focusing on the various indicators that determine personal wealth will help individuals and financial advisers plan and adjust their financial strategies,” said Scholtz-Mare.
