Non est vivere sed valere vita est - Life is not being alive, but being well!

The average state of South African households’ financial wellness deteriorated for the second consecutive year in 2013. The Momentum/Unisa South African Household Financial Wellness Index (SAHFWI) declined to 64.06 points in 2013 from 64.77 points in 2012 and 65.24 points in 2011.

This means that the majority of South African households resembled the characteristics of a Drifting Well household. Being Drifting Well implies that although a household’s financial situation is not unwell, it also is not stable thereby exposing the household to a high risk of becoming financially unwell. 

The main reason for the further deterioration in the average state of households’ financial wellness can be ascribed to a worsening in the wellness situation of supposedly financially healthy households rather than poor households becoming more financially unwell. Indeed, the index shows that only 21.8% of households were Anchored Well in 2013 compared to 26.4% in 2012 and 27.2% in 2011. Anchored Well means that the household is financially well in the current political/economic/social climate, but negative developments may cause the household to become Drifting Well.

Contrastingly, the number of Anchored Unwell households – those households that are deeply rooted in a financially unwell position needing major outside assistance for improvement – declined slightly from 5.6% in 2012 to 5.4% in 2013. However, as a result of a decline in the number of Anchored Well households and a marginal improvement in the state of wellness of the Drifting Unwell category, the proportion of households deemed to be Drifting Well increased to 39.8% in 2013 from 33.8% in 2012. This means that the number of Drifting Unwell households decreased from 34.2% in 2012 to 33% in 2013. 

The state of households’ financial wellness – whether they are Anchored Unwell, Drifting Unwell, Drifting Well or Anchored Well – is measured by calculating the wellness capital embedded in them. Each household possesses five types of capital - namely Physical capital (income and expenditure), Asset capital (assets, liabilities, net wealth), Human capital (education status), Environmental capital (housing) and Social capital (personal empowerment) – that affect each other on a continual basis to determine their overall state of financial wellness.

In 2013, the overall state of Physical capital, Asset capital and Social capital of households declined, whereas their Human capital and Environmental capital increased. As the declines exceeded the increases, it caused the collective state of financial wellness of households to deteriorate. In general the macroeconomic environment was not supportive of households’ financial wellness. Economic growth slowed to 1.9% in 2013 from 2.5% in 2012, consumer price inflation breached 6%, the expanded unemployment rate remained above 35%, whilst households’ arrears with credit payments exceeded R100 billion. 

One of the reasons for the decrease in the proportion of Anchored Well households and their deterioration towards the Drifting Well category can be ascribed to their income coming under pressure from debt repayments and price increases.  A relative large portion of their debt was of an unsecured nature carrying high interest rates causing a high instalment. Coupled with increasing prices and less access to credit, their financial wellness deteriorated.

Analysis also showed that the majority of households are at risk to various types of financial threats: 

· The Anchored Unwell and Drifting Unwell, comprising 38.4% of households (mainly earning less than R160 893 per annum), are under threat of interest rate increases as their debt to income (total income and not disposable income) exceeded 150%. Solvency indicators also show that on average they are insolvent as their liabilities exceed their assets;

· The Anchored Well and to some degree the Drifting Well (61.6% of households) are under threat of a correction in the share market as most of their assets are invested in the financial markets (either directly or indirectly via their retirement funds).

· Some 72.8% of households face a liquidity threat as they do not possess sufficient cash at hand to carry them through an unexpected emergency.

The results of the Household Financial Wellness Index clearly show that different households face different kinds of threats that need to be considered by policy makers. As such a well-intended “one size fits all” policy may cause households to become financially unwell rather than well.