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Momentum/UNISA South African Household Wealth Index Q2 2016

South African households’ real net wealth decreases in the second quarter of 2016

Momentum in collaboration with Unisa measures the state of South African households’ wealth on a quarterly basis. The Momentum/Unisa South African Household Wealth Index highlights a decrease in the purchasing power of South African households’ wealth in the second quarter of this year (Q2 2016). The real value of South African households’ net wealth decreased in Q2 2016 compared to Q1 2016. According to the Momentum/Unisa Household Wealth Index the real value of all households’ net wealth declined by (an annualised) R44.5 billion in Q2 2016 - compared to Q1 2016 - to R7 063.7 billion.

The Index shows that the real value of household net wealth had been on a declining trend over the past two years. When expressed as a percentage of one year’s disposable income, household net wealth declined from 399.4% two years ago to 383.2% in Q2 2016. This is much lower than the required ratios of 692% in the Euro area, 624% in the United States and 765% in Japan where households are enjoying an acceptable living standard. By analysing the changes of South African households’ net wealth, liabilities and assets, the 2016 Momentum Unisa Household Wealth Index for Q2 2016 aims to develop workable measures and solutions for consumers to avoid the burden of being buried under debt.

The decline in households’ net wealth – which is the value of their assets minus their liabilities – means that an ever growing number of South African households will not have sufficient income at retirement, struggle to maintain current lifestyles and find it increasingly difficult to recover from unexpected shock expenses such as the cost of medical treatment, a car accident, or theft. Although much of this decline in the real value of household net wealth was caused by external factors beyond their control, households do have some power over their financial destiny. Better financial behaviour such as financial planning, assessing whether purchases are really needed, determining the affordability of new debt, living a healthy life and making use of expert financial advice will contribute towards an improvement in their financial wellness.

The main reasons for the decline in the real value of household net wealth are the growing unaffordability of debt and purchases. The Index shows that although household affordability worsened gradually, it started to become a bigger issue since Q2 2015 and further intensified in 2016. This means that households’ ability to purchase goods, save money and repay their debt deteriorated significantly over the past year.

In addition, the gap between what households is required to repay (debt instalments) and what they actually repay has been on an increasing trend since 2012 - and has increased even further in Q1 2016. The trick for consumers is to prioritise building their wealth, by saving and investing more and borrowing affordable amounts.

At the same time the real value of household assets declined by (an annualised) R47.8 billion in Q2 2016 compared to Q1 2016. Momentum’s Johann van Tonder says “a number of factors contributed to the decrease including slowing (and negative real) returns on investments, a declining share of household income that was allocated towards retirement instruments, a small increase in property investments and negative real growth in house prices.”

International research has shown that when an increasing number of households take responsibility for their financial situation - whether it be by acquiring a needed retirement policy, purchasing an affordable motor vehicle or scaling down on an unaffordable living standard - they improve their chances of becoming financially well and accumulate wealth. This in turn will not only improve the financial resilience of households, but also improve South Africa’s economy’s potential to create jobs and grow faster.