SA’s average household wealth is still growing
The index compiled by Momentum researcher and economist Johann van Tonder, Unisa’s Bernadene de Clercq and Carel van Aardt from the Bureau of Market Research at Unisa, showed the purchasing power of households’ net wealth increased by an estimated R200.5 billion in this year’s first quarter, compared to the fourth quarter of last year.
According to the report, this meant that households, over the course of one quarter, regained almost 50 percent of the net wealth they lost last year, which can be attributed to a strong increase of R200 billion in the real value of households’ assets.
This in turn, was driven by a recovery in the real value of households’ investments in retirement funds and other financial assets, such as long-term insurance products and unit trusts, etc.
The ultimate financial goal of households is increasing their real net wealth in order to increase or maintain their own uniquely determined living standard over the lifetime, said the report.
The real value of households’ net wealth is the real value of their assets, minus the real value of their liabilities, with their assets mostly consisting of the values of their savings in retirement instruments, financial investment and residential properties, while their liabililties comprise of outstanding debts.
While the R200bn increase can be ascribed to an improvement in the real value of their assets, it remains R46.1bn less than a year ago during last year’s first quarter.
South African households’ outstanding liabilities declined by an annual rate of 0.1 percent, which translates into a decline of R0.5bn to a revised R1.4bn and only 0.5 percent higher than a year ago.
The report said the sluggish growth in the real value of household debt is indicative of the financial pressures consumers are experiencing.
Van Tonder, elaborating more on the report, using an example of the hunter/gatherer concept, dating back to thousands of years, said nothing has changed when it comes to accumulating wealth.
“People are still gathering, if you get more, you want more and that’s net wealth. In other words, people accumulate, even if it is subconsciously.
"You are not always content with what you have, that’s what net wealth is all about, even if they don’t know it, they accumulate wealth. Say for example, you start a job, you’ve got nothing, you get your first pay cheque, and what do you do, you say maybe get a laptop and immediately you’ve got wealth, because it is an asset, if you are buying it cash. You go along with a car, but that finance is debt. You then have to subtract the debt from the value of your car to get your wealth," said Van Tonder.
He said the same principle applied to other assets, such as acquiring a house.
“You then start investing or saving for retirement or for whatever reason. So good assets are supposed to gain value over time. If you invest in a retirement fund and every month you make a contribution towards a retirement fund or a retirement annuity, unit trust or whatever, you do it in the hope that the value of those assets will grow.
“You do all of those things in order to get growth on your assets, that’s what the hunters/gatherers did. They gathered more, so that they have more when you need it. So you save for retirement that you can have enough money for when you need it when you retire,” said Van Tonder.
He added that looking at this year’s second quarter and even the current third quarter, it seems that the wealth has been growing.
“In other words, the value of the assets are outperforming or increasing past debt. Our debt has sort of stabilised at the same levels while the value of the assets are growing but importantly the people who are gaining a lot are those people who are saving money in financial instruments.
“If you are not a household who is saving, say for a retirement annuity, or employer benefit scheme, like a retirement fund, then you would have missed out in the first quarter because the growth in wealth came from the growth in financial assets and the financial assets are the savings into retirement funds, retirement annuities, insurance policies, money market accounts, share portfolios, all of those things. That’s where the growth came from,” said Van Tonder.
According to the report, the outlook for this year’s second quarter points to a further recovery in the real value of household net wealth in this year’s second quarter as shares and bonds improved further, while the uptake of new debt will continue at a slow pace.