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Households real net wealth increased by more than R1 Trillion since the first quarter of 2020

22 February 2021 Momentum-Unisa

Wealthiest 2% households own almost 50% of the wealth, but be careful with the interpretation.

SUMMARY

South African households’ real net wealth increased by an estimated R1 009.1 billion (R1.009 trillion) from the onset of the second quarter of 2020 (Q2 2020) to the end of the year (Q4 2020). This happened despite COVID-19, the lockdown, job losses and an economic contraction.

This recovery follows an estimated decline of R772.8 billion during Q1 2020 that resulted from the introduction of lockdowns in many countries (including South Africa) to limit the spread of COVID-19.

Momentum-Unisa estimates that the real value (expressed in 2010-prices) of household net wealth increased to R7 797.4 billion by the end of Q4 2020. This is R236.3 billion higher than a year before.

The increase in household net wealth was even more spectacular when measured in nominal terms (current prices). It is estimated that household net wealth increased by R1 958.8 billion (almost R2 trillion) from the end of Q1 2020 to the end of Q4 2020 (refer to table 4).

The huge increase in household net wealth can mainly be ascribed to strong growth in the value of financial assets such as shares and bonds. Households’ pension funds and financial investments benefitted immensely from the increases in these financial instruments.

A distributional analysis of the ownership of household net wealth revealed that the wealthiest 2% of households owned almost 50% of household net wealth (just before the start of the pandemic). In contrast, the bottom 16% had negative net wealth values (their outstanding debts exceeded the value of their assets). These numbers should, however, be interpreted with caution. For instance, the wealthiest 2% are not necessarily the top 2% income earners. Many middle-income earning households formed part of the wealthiest 2% of households as they, among others, saved, invested, and insured in the right way, whilst not borrowing beyond their affordability thresholds. Contrastingly, some high-income earners had a negative net wealth position as they used their income sub-optimally from a wealth creation point of view.

The lockdown also exposed the dangers of using household balance sheet ratios as measurements of households’ indebtedness and state of wealth. Ratios such as debt to disposable income and net wealth to disposable income increased sharply, when in fact, the actual monetary situation revealed that households had less debt and their wealth decreased. It is therefore necessary to analyse both the ratios and the balance sheet values to make sense of households’ indebtedness and net wealth.

 

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