Unfortunately not better – South Africans remain under pressure The Momentum Unisa Household Financial Wellness Index (2015 results)
During 2015 Unisa, in collaboration with Momentum, conducted a nationally representative survey of households to uncover the levels of Financial Wellness in South Africa. In the process a large number of additional insights on household finances were obtained that were released on Wednesday 14 September at an event in Sandton.
The prime focus of this survey was based on five household Financial Wellness sub-indices which jointly make the Momentum/Unisa Household Financial Wellness Index, namely:
- Physical capital (income and expenditure);
- Asset capital (assets, liabilities and net wealth);
- Human capital (education and skills);
- Environmental capital (living environment); and
- Social capital (ability/empowered to control of finances).
The survey results indicate that social capital had the lowest sub-index score. Reasons for the low social capital score include South Africans generally not feeling in control of their lives. They feel disempowered to turn negative personal situations around and are distrustful of government and other institutions that are in positions to improve their lives.
The second lowest score obtained was in physical capital. This is not surprising given that more than 45% of the population live in poverty, more than 36% are unemployed (expanded definition) and the South African income distribution is one of the most unequal in the world. The government describes problems regarding physical capital as the so-called ‘triple challenge’ for South Africans consisting of poverty, unemployment and inequality.
The three better performing sub-index scores were achieved in asset capital, environmental capital and human capital. This is where some headway has been made due to reasons outside the control of households. Asset capital showed some growth due to among others positive returns achieved on investments; environmental capital improved due to urbanisation and implementation of government residential infrastructure and housing development programmes; while human capital gains largely resulted from secondary and tertiary education gains. Although there were sizable increases in the said aspects, the quality of such growth remains questionable.
During the period 2011 to 2015, the average overall Financial Wellness score of South African households increased steadily from 64.2 in 2011 to 66.6 in 2014 after which it declined marginally to 66.3 in 2015. This can be attributed to a large number of macro- and micro-level factors, such as declining economic growth rates, lower personal income growth rates, very low levels of consumer confidence, low household savings rates, an increasing number of households being financially vulnerable, households finding it increasingly difficult to obtain affordable credit and to service existing credit as well as low levels of consumer financial literacy.
Common sense dictates that educational attainment, employment status and income group should have a strong influence on household Financial Wellness. Survey results show that 27.7% of Financially Well households have at least one tertiary qualified household member while it also appears that a further 66.7% of Financially Well households have at least one household member with a completed secondary qualification as highest qualification in the household. In contrast, a completed primary qualification is the highest qualification in 88% of Financially Distressed households. Survey results also indicated that while 63.2% of the Financial Distressed households have unemployed household members, this is the case in only 11.5% of Financially Well households.
The relationship between household income and household Financial Wellness is much weaker than anticipated, thus giving rise to possible high levels of disorder (entropy). It is interesting to note that nearly 10% of Financially Exposed households earned more than R 400 000 during 2015. Thus, although the level of income shows a strong relationship with Financial Wellness, it is evident that income alone is not the distinguishing factor.
The relationship between household capability and household resources as it pertains to the different Financial Wellness groups also provided interesting results. Household capability refers to the human and social capital capability of households to generate sufficient incomes and assets to be Financially Well. Household resources refer to the physical, asset and environmental capital generated based on household capability to generate such resources.
THE INTERPLAY BETWEEN HOUSEHOLD CAPACITY AND HOUSEHOLD RESOURCES FOR EACH OF THE HOUSEHOLD FINANCIAL WELLNESS GROUPS
Results show that sizable levels of disorder (entropy) exists in the relationship between capability and resources, as lower capability households in some instances produce more resources (positive entropy) or in other cases highly capable households produce very little resources (negative entropy). Positive entropy increases and negative entropy tends to diminish as one moves from Financially Unstable to Financially Well households.
It appears from literature that households can reduce negative entropy by conducting detailed money saving and financial planning. This finding is in line with the results of the Momentum/Unisa Financial Wellness study which showed that as one moves up the Financial Wellness scale, there is an increasing propensity for households to conduct detailed financial planning, especially in written format.
Furthermore, Financially Well households plan over a longer term (one year or longer). Another distinguishing aspect is that Financially Well households also record their financial positions on a continuous basis while those households which regularly overspend tend to have increasing levels of negative entropy.
Certain personal finance best practices could be identified to optimise Financial Wellness and to minimise negative financial entropy. These best practices include the following:
- Households need to prepare for financial shocks by firstly saving for emergencies; secondly, by determining the likelihood of financial risks realising (i.e. unemployment, illness, divorce); thirdly by taking out income protection insurance to mitigate against sudden dips in income; and fourthly, by not being denialist regarding the possibility that the good times will not last forever;
- Households need to be able to respond to financial shocsks. Such responses include cutting back on spending, diversifying income streams, taking up appropriate financial products to mitigate against risks and seeking good advice and support. The MAS study found that many households in distress did not respond to shocks because they did not know how, refused to adapt their lifestyles downwards, refused to recognise that they are in distress because of the belief that only losers fail or refused to seek help because of being too proud to do so; and
- Households need to become more financially resilient. Households become more resilient by being prepared, adaptable, responsible and better able to deal with emotions.
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