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Momentum and UNISA to launch the Momentum/UNISA Household Financial Wellness Index

Momentum & Unisa
19 April 2012

Momentum has teamed up with UNISA to launch the Momentum/UNISA Household Financial Wellness Index. This is the first independent, credible and comprehensive research of its kind in South Africa and the findings present an invaluable and unprecedented benchmark in understanding the state of the nation’s financial wellness.

Researched and presented in collaboration with UNISA, the Momentum/UNISA Household Financial Wellness Index will provide financial service professionals and consumers with a meaningful overview to better understand and interpret the current state of financial wellness of South African households. It will also provide policy makers with insight needed to improve the financial wellness of households.

The research was undertaken by the Bureau of Market Research (BMR) and the Personal Finance Research Unit (PFRU) at UNISA. Impeccable research credentials will provide a credible and ongoing source of data available to everyone.

Until recently the analysis of trying to define Financial Wellness was determined on the basis of a household’s income statement, comprising income, expenditure and savings alone. Now for the first time, The Momentum / UNISA Household Financial Wellness Index will give a comprehensive and ongoing snapshot of a household’s entire financial wellness, including the income statement, balance sheet – to include assets, liabilities and net worth, along with an assessment of three other influencing factors, namely level of education, living environment and locus of control. Now, a household’s financial wellness will be indicated and understood by more than a straightforward list of liabilities offset against a tally of income and assets.

Four categories of financial wellness have been determined to identify the state of individual households’ financial wellness. The categories were determined by way of an index score where after the percentage of households in each category was determined

  • Anchored Unwell –The household is deeply rooted in an unwell position with very little chance of being lifted from such position without major outside assistance (0 - <30).
  • Drifting Unwell – The household is not deemed to be entrenched in an unwell position; however its position is unstable and negative circumstances can easily cause the household to become anchored in an unwell position, whilst a positive influence can move the household into the Drifting Well category (30 - <60).
  • Drifting Well – As is the case with the Drifting Unwell household, the Drifting Well household’s situation is unstable. It can easily become Drifting Unwell, but may also move toward the Anchored Well position with assistance (60 - < 80).
  • Anchored Well – The household is firmly financially well (80-100).

The South African population of households achieved a score of 59.35. Though only 4.8% was found to be Anchored Unwell, 48.5% are Drifting Unwell which means that a large portion of them can easily become Anchored Unwell should they be exposed to adverse events. Similarly, the 30.5% who fall in the category of Drifting Well, may become Drifting Unwell. However, with the correct policies and other outside assistance, their positions may improve.

What is also clear is that the level of financial wellness improves drastically when the household possesses a higher level of education. Households with some primary and some secondary education are Drifting Unwell with scores of 42 and 51 respectively. The scores however escalate to 61 and 78 respectively for those who have completed secondary and tertiary education. This gives a solid indication that education has a substantial impact on a household’s financial wellness. Other insights include, for example, the impact of labour status and age on financial wellness.

In terms of labour status a spectacular insight brought to the forefront was that although many households are income poor they are asset rich. They are therefore not in such bad financial state as indicated by their level of income.

Bernadene de Clercq, Head: Personal Finance Research Unit at UNISA points out: “There is currently no similar Index in South Africa which is constructed on a holistic approach to determine comprehensive financial wellness across all households. Other indices have only applied limited criteria and are thus not comparable.”

On benefit to the public De Clercq continues, “The Index is a multi-dimensional body of research providing insight regarding financial wellness based on physical capital, human capital, social capital, environmental capital and asset capital – thus providing a holistic approach. This provides valuable insight to policy-makers and financial service providers regarding the overall financial wellness of households and potential areas which might need intervention.”

The Momentum Household Wealth Report- Findings present a Nation facing Balance Sheet Pressure

Launched at the same time as the Momentum/UNISA Household Financial Wellness Index, the Momentum Household Wealth Indicator, which was also done in collaboration with UNISA, offers parallel insight while also presenting a key overview in the state of South African households’ financial wealth as measured by their assets minus liabilities.

The Household Wealth Report gives context to the research objectives. Economic theory dictates that the state of household financial wellness, to a large extent, determines the vibrancy and sustainability of an economy’s performance. This was again demonstrated by post-recession events as countries with balanced household income statements and strong household balance sheets were able to recover much faster from the financial crisis. In this respect the strength of the household balance sheet played a pivotal role in economic recovery.

The Momentum/UNISA Household Wealth Indicator provides a comprehensive and ongoing snapshot of South African households’ income statements and balance sheets.

The report provides an overview of households’ sources of income and savings as well as the impact thereof of households balance sheets and vice versa. The identified drivers of household asset accumulation and liability incurrence provide valuable insight to analysts, policy makers and indeed households themselves. Included in the report are the:

  • Momentum/UNISA Household Asset Index
  • Momentum/UNISA Household Liability Index
  • Momentum/UNISA Household Wealth Indicator

The results show a nation facing pressure on their wealth as most continue to work for an income, as apposed to prudent planning that will allow their income to work for them.

Key observations include:

  • It is impossible to gauge households’ financial health by only focusing on the income statement without any reference to the household balance sheet. A household may have a high income but be wealth poor if income is readily consumed and not employed to create wealth.
  • Post recession – household consumption expenditure recovered strongly; however this was at the expense of household capital spending, which declined by some R20 billion in 2011. Knock on effect will be a negative impact on the pace of household asset accumulation;
  • Worryingly, household liabilities increased at a much faster pace than household income and household assets; therefore the household liability index shows a rapid increase;
  • Household asset accumulation was severely affected by the recession due to the slump in the JSE and the fact that 70% of household assets are contained in financial instruments.
  • Household net wealth has been on a declining trend since 1975. The ratio of household net wealth to disposable income has been declining consistently in relation to income meaning that income has not been employed efficiently to generate asset growth;
  • Household net wealth has a substantial impact on economic growth and job creation as household assets are utilised to produce and create jobs.
  • Commenting on Momentum’s support of the research, Danie van den Bergh, Head of Brand at Momentum says: “We trust the information will equip South Africans with useful insight and provide an invaluable level of understanding. By having an accurate financial snapshot, South Africans will be able to know exactly where they stand and with that knowledge, be able to work towards a more positive outlook”.

    Van den Bergh concludes, “Our collaboration with UNISA means that we can present a thoroughly researched overview of the nation’s financial wellness. Knowing and acknowledging the needs of individuals will enable us, in partnership with financial advisers, to take the quality of our relationship with clients to the next level. We want to positively affect the financial wellness of all individuals, families and businesses in South Africa.”

Last updated 12 February 2013 14:00


Join the discussion  Twitter Facebook

About Momentum > News from Momentum > Press Releases

Momentum and UNISA to launch the Momentum/UNISA Household Financial Wellness Index

Momentum has teamed up with UNISA to launch the Momentum/UNISA Household Financial Wellness Index. This is the first independent, credible and comprehensive research of its kind in South Africa and the findings present an invaluable and unprecedented benchmark in understanding the state of the nation’s financial wellness.

Researched and presented in collaboration with UNISA, the Momentum/UNISA Household Financial Wellness Index will provide financial service professionals and consumers with a meaningful overview to better understand and interpret the current state of financial wellness of South African households. It will also provide policy makers with insight needed to improve the financial wellness of households.

The research was undertaken by the Bureau of Market Research (BMR) and the Personal Finance Research Unit (PFRU) at UNISA. Impeccable research credentials will provide a credible and ongoing source of data available to everyone.

Until recently the analysis of trying to define Financial Wellness was determined on the basis of a household’s income statement, comprising income, expenditure and savings alone. Now for the first time, The Momentum / UNISA Household Financial Wellness Index will give a comprehensive and ongoing snapshot of a household’s entire financial wellness, including the income statement, balance sheet – to include assets, liabilities and net worth, along with an assessment of three other influencing factors, namely level of education, living environment and locus of control. Now, a household’s financial wellness will be indicated and understood by more than a straightforward list of liabilities offset against a tally of income and assets.

Four categories of financial wellness have been determined to identify the state of individual households’ financial wellness. The categories were determined by way of an index score where after the percentage of households in each category was determined

  • Anchored Unwell –The household is deeply rooted in an unwell position with very little chance of being lifted from such position without major outside assistance (0 - <30).
  • Drifting Unwell – The household is not deemed to be entrenched in an unwell position; however its position is unstable and negative circumstances can easily cause the household to become anchored in an unwell position, whilst a positive influence can move the household into the Drifting Well category (30 - <60).
  • Drifting Well – As is the case with the Drifting Unwell household, the Drifting Well household’s situation is unstable. It can easily become Drifting Unwell, but may also move toward the Anchored Well position with assistance (60 - < 80).
  • Anchored Well – The household is firmly financially well (80-100).

The South African population of households achieved a score of 59.35. Though only 4.8% was found to be Anchored Unwell, 48.5% are Drifting Unwell which means that a large portion of them can easily become Anchored Unwell should they be exposed to adverse events. Similarly, the 30.5% who fall in the category of Drifting Well, may become Drifting Unwell. However, with the correct policies and other outside assistance, their positions may improve.

What is also clear is that the level of financial wellness improves drastically when the household possesses a higher level of education. Households with some primary and some secondary education are Drifting Unwell with scores of 42 and 51 respectively. The scores however escalate to 61 and 78 respectively for those who have completed secondary and tertiary education. This gives a solid indication that education has a substantial impact on a household’s financial wellness. Other insights include, for example, the impact of labour status and age on financial wellness.

In terms of labour status a spectacular insight brought to the forefront was that although many households are income poor they are asset rich. They are therefore not in such bad financial state as indicated by their level of income.

Bernadene de Clercq, Head: Personal Finance Research Unit at UNISA points out: “There is currently no similar Index in South Africa which is constructed on a holistic approach to determine comprehensive financial wellness across all households. Other indices have only applied limited criteria and are thus not comparable.”

On benefit to the public De Clercq continues, “The Index is a multi-dimensional body of research providing insight regarding financial wellness based on physical capital, human capital, social capital, environmental capital and asset capital – thus providing a holistic approach. This provides valuable insight to policy-makers and financial service providers regarding the overall financial wellness of households and potential areas which might need intervention.”

The Momentum Household Wealth Report- Findings present a Nation facing Balance Sheet Pressure

Launched at the same time as the Momentum/UNISA Household Financial Wellness Index, the Momentum Household Wealth Indicator, which was also done in collaboration with UNISA, offers parallel insight while also presenting a key overview in the state of South African households’ financial wealth as measured by their assets minus liabilities.

The Household Wealth Report gives context to the research objectives. Economic theory dictates that the state of household financial wellness, to a large extent, determines the vibrancy and sustainability of an economy’s performance. This was again demonstrated by post-recession events as countries with balanced household income statements and strong household balance sheets were able to recover much faster from the financial crisis. In this respect the strength of the household balance sheet played a pivotal role in economic recovery.

The Momentum/UNISA Household Wealth Indicator provides a comprehensive and ongoing snapshot of South African households’ income statements and balance sheets.

The report provides an overview of households’ sources of income and savings as well as the impact thereof of households balance sheets and vice versa. The identified drivers of household asset accumulation and liability incurrence provide valuable insight to analysts, policy makers and indeed households themselves. Included in the report are the:

  • Momentum/UNISA Household Asset Index
  • Momentum/UNISA Household Liability Index
  • Momentum/UNISA Household Wealth Indicator

The results show a nation facing pressure on their wealth as most continue to work for an income, as apposed to prudent planning that will allow their income to work for them.

Key observations include:

  • It is impossible to gauge households’ financial health by only focusing on the income statement without any reference to the household balance sheet. A household may have a high income but be wealth poor if income is readily consumed and not employed to create wealth.
  • Post recession – household consumption expenditure recovered strongly; however this was at the expense of household capital spending, which declined by some R20 billion in 2011. Knock on effect will be a negative impact on the pace of household asset accumulation;
  • Worryingly, household liabilities increased at a much faster pace than household income and household assets; therefore the household liability index shows a rapid increase;
  • Household asset accumulation was severely affected by the recession due to the slump in the JSE and the fact that 70% of household assets are contained in financial instruments.
  • Household net wealth has been on a declining trend since 1975. The ratio of household net wealth to disposable income has been declining consistently in relation to income meaning that income has not been employed efficiently to generate asset growth;
  • Household net wealth has a substantial impact on economic growth and job creation as household assets are utilised to produce and create jobs.
  • Commenting on Momentum’s support of the research, Danie van den Bergh, Head of Brand at Momentum says: “We trust the information will equip South Africans with useful insight and provide an invaluable level of understanding. By having an accurate financial snapshot, South Africans will be able to know exactly where they stand and with that knowledge, be able to work towards a more positive outlook”.

    Van den Bergh concludes, “Our collaboration with UNISA means that we can present a thoroughly researched overview of the nation’s financial wellness. Knowing and acknowledging the needs of individuals will enable us, in partnership with financial advisers, to take the quality of our relationship with clients to the next level. We want to positively affect the financial wellness of all individuals, families and businesses in South Africa.”

Last updated 12 February 2013 14:00


Join the discussion  Twitter Facebook