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South Africans still struggling with debt, despite an increase in net wealth

Momentum  |  04 March 2014

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The Momentum / UNISA Household Wealth Index 3rd Quarter 2013

Momentum and UNISA have released the 3rd quarter 2013 Household Wealth Index. At first glance it appears that South African households enjoyed a significant surge in the nominal value of their net wealth and all is rosy. This jump in overall wealth was despite the fact that real economic growth decelerated sharply to 0.7% in Q3 2013 (from 3.2% in Q2 2013).However this does not give the full picture and caution is the watchword here.

Head of Marketing and Financial Wellness from Momentum, 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."

The report by Momentum and UNISA is aimed at giving 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 (QoQSAAR) compared to Q2 2013.

According to the Q3 Index, the following is noteworthy:

  • The nominal value of households' net wealth amounted to R6 836.5 billion during Q3 2013 - almost R430 billion more compared to Q2 2013. However, it must be noted that the strong acceleration in the value of households' net wealth during Q3 2013 followed a sluggish QoQSAA growth rate of 1% during Q2 2013 - which in value terms is equal to an increase of only R15 billion.
  • 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 Q3 2012 compared to the 11.1% (QoQSAA) of nominal household liabilities.
  • Nominal household assets amounted to R8 418 billion in Q3 2013 - some R470 billion more than the R7 948 billion registered in Q2 2013. Nominal household liabilities amounted to R1 581 billion in Q3 2013 compared to the preceding quarter's R1 540 billion.

Professor Bernadene De Clercq, from the Personal Finance Research Unit at UNISA says 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, which in turn contributed to a strong increase in their net wealth position during Q3 2013 and South African shares outperformed the other major asset classes. The JSE All Share Index (JSE ALSI) was12.1% higher at the end of Q3 2013 compared to the end of Q2 2013.:

Household Net Wealth

Household net wealth increased by R208 billion in Q3 2013 to R4 379 billion. Real household liabilities increased by R10 billion and real household assets by R218 billion.

Household Assets

Approximately 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 R37 billion, which is lower than the R52.1 billion of Q2 2013. This suggests a decline in both deposit holdings and contractual savings by households during Q3 2013.

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 households are struggling somewhat to reduce their debt burden.

De Clercq says 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".


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