Households were, on average, marginally wealthier in March this year than they were in December last year, according to the Momentum Unisa Wealth Report for the first quarter of 2017. However, households are poorer than they were a year ago. 

South Africans are continuing to reduce their level of debt, the report says.

The Momentum Unisa Household Wealth Index shows that real (after-inflation) household net wealth increased 2% in the first quarter of this year compared with the fourth quarter of 2016, from R6.959 trillion to R6.994tn. However, households were 1.3%, or R91.3bn, poorer than they were in the first quarter of last year.

The index measures households’ net wealth, which is the combined net value of all the goods they own and the money they have saved.

Households’ net wealth in the first quarter of 2017 was the same as it was in the first quarter of 2014. The consequences of this loss of real net wealth are far-reaching, the report says.

Shrinking, or slow-growing, real household net wealth results in consumers becoming more financially vulnerable, and in their having a lower standard of living while they are working and when they retire, the report says. 

It also results in lower economic growth and job creation, and slows the pace of transformation.

The report says that one of the reasons for the small quarter-on-quarter increase in households’ net wealth was the improvement in the performance of their financial assets, which are invested mainly in retirement funds.

Decline in liabilities

Another reason for the increase was that the real value of households’ liabilities, which are subtracted from their assets to calculate their net wealth, declined in the first quarter compared with the first and fourth quarters of 2016. This indicates that households are reducing their indebtedness, which “is positive for wealth accumulation”. 

The ratio of household liabilities to disposable income declined to 73.9% in the first quarter, from above 75% in the fourth quarter and almost 76% in the first quarter of last year.

The index shows that deleveraging has been ongoing for almost a decade: the ratio was about 90% in 2008. 

“High indebtedness continues to affect households’ cash flow, as they allocate a larger share of their income towards the repayment of debt, which contributes to a slowing in the uptake of new credit and to the lower debt-to-disposable-income ratio,” the report says.

The report says the decline in debt to accumulate assets – as is the case with mortgage bonds to acquire property – indicates the extent of the financial pressure on consumers, and was one of the “wrong reasons” for the quarterly increase in households’ real net wealth.

“Furthermore, when shrinking net wealth occurs despite shrinking debt – as shown by the year-to-year figures – it indicates that household assets are not performing well in generating returns for households. For assets to generate wealth for households, the economy must be performing and households need to engage in the right activities,” the report says. 

Most households are still not saving enough for retirement, and their budgeting and financial planning is inadequate, it says.

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