Lee-Ann Du Toit, Head of Financial Wellness for Momentum.
In the wake of increasing regulatory pressure to ensure that users of financial services products are treated fairly and the products offered are appropriate, Momentum has invested in ensuring that its clients and all South Africans are empowered on an im
Momentum has taken a strategic business decision to ensure that their Client Value Proposition puts the client’s needs on centre stage. The collaboration between UNISA and Momentum to create the Momentum/UNISAHousehold Financial Wellness Index was the forerunner of an initiative to help financially empower South Africans become more aware of their financial vulnerabilities and to effect positive change.
While the Index gives a snap shot view of where South Africans stand on a macro level of financial wellness, Momentum is taking this further by enabling individuals to find out where they personally stand on the financial wellness scale. Lee-Ann Du Toit, Head of Financial Wellness for Momentum says: “The recent results of the Momentum/UNISAHousehold Financial Wellness Index are concerning; South Africans are worse off than last year and we need to help change this trend”.
Momentum has created various individualised consumer solutions that will empower consumers on their financial wellness journey. Given the fact that South Africans are experiencing a worsening financial situation, these solutions are more important than ever. The initiative is currently being piloted with a select group of consumers, financial advisers and Momentum staff and will be launched to the public before the end of the calendar year."
Thisfirst roll-out of Momentum Financial Wellness will includeconsumer solutions which will be available free to all. Over time developments will be added.Part of these future developments will be to integrate these tools holistically with a long term- financial planning process and with a strong client education and empowerment focus.
Du Toit says: “This initiative is a game changer, not only will it assist clients to see where they are vulnerable but it willequip them with the means and the solutions to make changes.
Client satisfaction researchsupports the notionthat it pays to understand the needs and wants of clients and to focus organisational strategy accordingly. This philosophy of ‘client-centricity’ means that Momentum’s orientation is around the needs and behaviour of its clients, rather than internal objectives (such as short-term profit),” says Du Toit.
Momentum is adopting a long-term focus on empowering consumers and clients to become financially well. “We want to foster a financial partnership for life.This means that we need to create context around products and help clients understand where they fit into the big picture of a financial plan,and the financial adviser plays a pivotal role in this process.We will continue to deliver and refine innovative solutions and products to meet the needs of clients and we are looking forward to seeing thefinancial situations of South Africans improve and stabilise. It’s not just the right thing to do, it’s the only thing to do for a sustainable financial future for South Africans,”concludes Du Toit.
More South African Households Financially Unwell in 2012, compared to 2011.
Targeted policy responses needed for a turnaround.
South African households’ level of financial wellness deteriorated in 2012.
The Momentum/UNISA South African household financial wellness index revealed a decline in the average financial wellness score of households from 65.23 points in 2011 to 64.77 points in 2012. Although the change seemsmarginal, on a net basis it translates into more than 276 000 households moving to a weaker financial wellness category in 2012, whilst only 15000 managed to climb the wellness category ladder.
The financial wellness index was launched last year following a partnership between Momentum and UNISA. This year the index was transformed into a dynamic index in order to make comparisons possible. As such the index scores are expressed in 2012-terms.
Mark van der Watt, CEO of Momentum Retail, said the point of the dynamic wellness index is to measure the state of the nation’s financial wellness on a year over year basis and for the research to influence policy maker decisions and effect individual behaviour changes. After all, the financial wellness of the government, private companies and other organisations to a large degree, is dependent on the financial wellness of individuals and households.
The Momentum/UNISA South African Household Financial Wellness Index is constructed from a nationally representative survey among South African households. The survey sample comprised 3533 households in 2012.
The holistic definition of household financial wellness prescribes that households’ financial wellness be measured according to the five types of capital households possess, and accepting that each type of capital influences the others. The capital types are: Physical capital(Income and Expenditure), Asset capital(Assets, Liabilities, Net Wealth), Human capital(Education, Skills), Environmental capital(Dwelling type)and Social capital(Personalempowerment).Following the measurement of households’ scores on each type of capital, households are grouped into four categories of financial wellness, namely Anchored Unwell, Drifting Unwell, Drifting Well and Anchored Well.
Prof. Bernadene de Clercq, head of the Personal Finance Research Unit at UNISA, said the 2012-results reveal thatlarge numbers of households moved from being Drifting Unwell to Anchored Unwell and from Anchored Well to Drifting Well.Some 5.6% of households were Anchored Unwell in 2012 compared to 4.5% in 2011 – this translates into a net downward movement of approximately 164 000 households. Similarly, on a net basis some 112000 households moved from being Anchored Well to Drifting Well, meaning that only 26.4% of households were Anchored Well in 2012 compared to 27.2% in 2011.
Many factors contributed to South African households on average becoming more financially unwell in 2012. On the macroeconomic front, De Clercq said the struggling international economic environment had a negative impact on South Africa’s ability to generate faster economic growth from production. Coupled with a number of South African home grown problems, low economic growth negatively affected households’ ability to earn an income from employment. She says a comparison with 2011 clearly shows that the economy - shaped by current policies and an uncertain international economic environment - will not create the desired jobs and income required to improve the physical capital of households.
The research revealed that on average, an improvement in physical capital, or household income, is the major trigger needed to positively affect the other types of capital on the path to financial wellness. Labour market numbers provided by Stats SA, however, confirmed that the required and equally distributed improvement in household income was lacking in 2012. For instance, whereas unemployment increased by one person for every 4 jobs created in 2011, the number of unemployed persons increased by 12 for every 4 jobs created during 2012.
De Clercq says this has a knock-on effect on households’ financial wellness. When for instance economic conditions cause households’ physical capital to deteriorate (income is insufficient to finance expenses and savings), it affects the ability of households to repay debt, accumulate wealth, acquire improving levels of education, uplift themselves from and within their environment and very important, empowering themselves financially.
Disaggregating the data reconfirmed the characteristics associated with financial wellness and -unwellness. Becoming, or being financially unwell is characterized by a lack of sufficient income, being unemployed, insufficient education and skills, being financially illiterate, as well as having too much debt. In the latter regard, an important difference between the Drifting Unwell and Drifting Well in terms of their asset capital was their level of indebtedness. Whereas both categories had an asset to income ratio of 264%, the Drifting Unwell category on average had a liability to income ratio of 76% compared to the 61% of the Drifting Well category.
The research results also confirmed the need for the correct policy and programmeinterventions by the government and companies - and recognition that an improvement in household financial wellnesswill not be accomplished via the “one size fits all” and “business as usual” routes. In this respect De Clercq pointed out that the research identified that each category of financial wellness households requiresa different policy mix to improve their financial wellness. To strengthen the current policy mix on offer some other policies need to be considered which include the following:
• Revamping the South Africa educational and training system to measure quality (performance of learners against international standards) as against quantity (i.e. percentage of grade 12 learners passing the matric exam).
• Focus should be on socioeconomic transformation; and not solely on the demographic transformation of society.
• Companies should align their Corporate Social Responsibility initiatives with the priorities of the country and ensure more participation in socioeconomic transformation.
• Changing the development agenda away from demandto creating solutions that encourage an environment of job and company creation.
• Ensuring fiscal discipline and limited government while using the tax system to incentivise production, exports, employment, business creation and community engagement.
• Addressing the large number of structural imbalances in the economy as a matter of urgency as it prevents the transmission path from economic growth to employment and household incomes and vice versa to function adequately.
Van der Watt concluded that Momentum’s collaboration with UNISA means that we can present a thoroughly researched overview of the nation’s financial wellness and the factors inhibiting their financial wellness. Knowing and acknowledging the needs of individuals will enable us, in partnership with other stakeholders such as 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.”
More information can be obtained from the brochure and presentation which will be available on Momentum (www.momentum.co.za) and UNISA’s(www.unisa.ac.za/bmr) websites.
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