How financially well are you?

Personal Finance

Nearly 70 percent of South Africans don’t have a financial plan and 80 percent don’t have a financial planner, research by Momentum shows. The financial services company says these figures explain, in part, why most households are financially unwell.

A staggering 77 percent of households in South Africa are financially unwell, Johann van Tonder, a researcher and economist at Momentum, says. You or your household are financially unwell if you’re not able to pay all your bills monthly, cover unexpected expenses and make provision for retirement, he says.

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Over the past five years, Momentum has partnered with Unisa to produce the annual Momentum Unisa Household Financial Wellness Index, which details, over time, the state of the nation’s financial wellness.

Based on the research, Momentum arrived at the following definitions to describe households:

• Financially well: they can comfortably cover their planned and unforeseen expenses, now and into the future;

• Financially exposed: they cope every month, but any sudden expense will necessitate a reworking of their budget, or they will have to borrow money or dip into long-term savings to cope;

• Financially unstable: they are not servicing their debts regularly and are borrowing more every year to cope; or

• Financially distressed: they have to borrow money every month to pay for basic needs such as food and shelter.

Van Tonder says that in 2015 only 23 percent of households could be classified as financially well – a decrease from the previous year, when 28 percent of households were financially well. (The 2016 household financial wellness index will be published in July.)

Danie van den Bergh, the head of Momentum brand and marketing, says an alarming number of above-average income earners are financially unstable or financially exposed.

And there are problems among those who are “financially well”. For example, 40 percent of people who are financially well have a will, yet half of them have incorrectly structured wills, or wills that are out of date, Van den Bergh says.

Saddest of all, he says, is that when consumers are asked what their time horizon is for planning for the future, only 22 percent of those who are financially well plan “beyond a few years”.

The statistics relating to discretionary income paint a bleak picture: Van den Bergh says people earning between R16 000 and R33 000 a month have a shortfall of R2 000 in their discretionary income every month; those earning R33 000 to R60 000 a month have no discretionary income; and those earning R60 000 to R100 000 a month have discretionary income of R3 500.

Twenty-five percent of, or 500 000, people in the upper segment of the market – namely those who earn R30 000 or more a month – have defaulted on payments over the past year, he says.

So, what’s the remedy to our financial illness? Van den Bergh says more products are not the answer. “We can’t sell you products to make you financially well; a relationship with an adviser will get you there,” he says.

Research by Momentum has found that financially well households have the following features:

• A budget;

• A documented financial plan;

• A will;

• A financial planner; and

• A tendency to change their behaviour as circumstances demand.

Van Tonder says the ability to adapt is important, and he explains this as follows: “Let’s say you live in a house worth R2 million and something happens to you and suddenly you can’t afford the house. Instead of trying to maintain their current standard of living, financially well households will downscale. They change their behaviour as circumstances demand, unlike people who resist downscaling.”

How well are you?

What if you tick all the boxes – you have a budget, a will, a financial plan, a financial planner and reckon you’re inclined to change your behaviour when necessary – but feel that you’re not quite “financially well”?

To check your financial wellness, you can use a self-assessment tool on Momentum’s website. It took me 30 minutes to complete the eight questionnaires that give you a score out of 100. The questionnaires cover everything from income protection to life cover, health cover, retirement savings, estate planning, critical illness cover, car and home insurance, and how financially savvy you are.

Each questionnaire comprises between six and 12 questions, and starts with a blurb describing what it aims to assess. For example, the retirement questionnaire “assesses your likelihood to be able to completely replace your income at retirement and have this income last for as long as you live. A score below 100 percent means you should speak to an adviser about increasing or beginning your savings, but a score above 80 percent can be considered a good score.”

I found some of the questions challenging to answer, particularly those in the critical illness and functional impairment questionnaire, revealing gaps in my knowledge about this type of cover.

To find the test, go to and click on the “Financial wellness” tab.

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