Resilience defines the state of financial wellness in South African households

Small behaviour adjustments needed for marked improvement across the board.

The data released from the 4th Momentum/Unisa Household Financial Wellness Index (2014) indicates that the state of households’ financial wellness improved for the third consecutive year*. The index increased to an average of 66.64 points in 2014 from 65.93 points in 2013.

Momentum/Unisa South African household financial wellness index

This increase occurred despite a number of economic events that had the potential of derailing households’ financial wellness. These events include a five month long labour strike in the platinum sector, a 75 basis point increase in the repo and prime interest rates, a lack of sufficient infrastructure and a volatile and deteriorating international economic environment during 2014. Households however showed resilience by adjusting and overcoming these threats.

These events nevertheless constrained production, employment and growth in households’ financial assets, thereby preventing households to further improve their financial wellness. However, some macroeconomic indicators such as economic growth (real gross domestic product (GDP), employment and share prices show that the economy continued to improve during 2014 due to among others the mentioned resilience of households. An increase in real GDP (up R45 187m) in 2014 contributed to the creation of 143 000 additional jobs, that in turn ensured higher incomes for many households. Furthermore, households that saved and invested in assets through exposure to shares (such as annuities and retirement products), reaped the benefits of an increase in the JSE All Share Index.

Examination of the five measured capital types in the Financial Wellness Index however revealed that households are under pressure in terms of their social (personal empowerment) and physical (income) capital. Interventions are therefore needed that are aimed at improving households’ control over their finances, coupled with better quality and affordable education in an attempt to enhance income earning potential and increase the level of such income – that collectively will improve the number of financially well households.

Individual categories of financial wellness

The analysis show that the proportion of households in the Financially Well category increased slightly to 27.9%, implying that 72.1% unfortunately remain financially unwell. A general movement from Financially Unstable towards the Financially Exposed and Financially Well categories did however occur, contributing to a small improvement in the state of households’ financial wellness. Unfortunately the proportion of Financially Distressed households did not decline, but remained stagnant.

Measuring financial wellness is important because it indicates whether South Africa is becoming a winning nation or not. When an increasing number of households become financially well, it shows that they acquired the ability to do the right things which in turn improves the chance of South Africa becoming a winning nation. An increasing percentage of financially well households will not only contribute towards more households becoming financially well , but also enable a state of total financial wellness. Individuals and households have a pivotal role to play to collectively improve the state of the country’s financial wellness.

The research further indicated that households can effect a big change in their financial wellness by acquiring the discipline of prudent financial planning, or in other words the implementation of a purposefully defined and managed budget, and the foresight to anticipate and plan for both emergencies and retirement. Currently only 8% of households budget, have a financial plan and provide for emergencies and retirement. The ongoing mantra is that small adjustments in behaviour patterns can and will make a difference to both households and the country’s state of financial wellness.

Even though improvements were recorded in average financial wellness, much can still be done to assist a larger portion of households to become Financially Well. Now is not the time for complacency. Individual actions have a knock-on effect and all individuals/households have the potential and capability to improve their financial wellness. Small changes in behaviour and improved financial literacy are where it all begins. However, support from other role players such as government, employers, labour unions and especially educators will accelerate such improvement.