The Momentum / Unisa Household Wealth Index 1st Quarter 2015

True value of wealth increases on shaky ground.

South African households got wealthier in the first quarter of 2015 (Q1 2015) despite subdued economic conditions. The Momentum/Unisa Household Wealth Index indicates that households’ wealth increased at an annualized rate of 12.1% between Q4 2014 and Q1 2015. This increase was mainly driven by strong growth in the value of household assets, specifically financial assets. At a cursory glance, the strong growth seems to be a positive indicator. However, the increase can realistically be described as fragile as households are predominantly relying on volatile and overpriced share prices for growth in the value of their financial assets and wealth.

A further related indicator - which is cause for concern - is the slow growth in workers’ contributions to retirement funds. Such contributions remained virtually stagnant compared to a year ago (up 0.9%) signifying pressure on households to save more. So, by not saving more and mostly relying on share prices for asset growth, households overexpose themselves to the fragility and volatility of international markets for growth in their wealth.

Another alarming observation is the increase in borrowing to finance daily consumption. Although a large portion of household debt is used to finance residential assets as well as asset-backed goods such as vehicles (depreciating asset), furniture or electronics, a growing portion of debt is allocated towards living expenses. The fastest growing debt type is credit card debt which was 9.7% higher than a year ago. Contrastingly, instalment sales credit grew at almost half the pace (5.9%), while the growth in unsecured loans (3.7%) and mortgages (2.7%) also levelled off (3.7%).

Households failing to budget or implement meaningful financial wellness planning is causing a downward spiral into debt. Households under pressure are either unable or lack the discipline to save for emergencies, grow assets or make provision for retirement.

Not saving sufficiently for investment is indicative of financial strain. Households are borrowing to keep going. This is confirmed by the increase in the proportion of income spent on debt repayment. The purpose of analysing the changes and levels of household liabilities, assets and net-wealth is an attempt to develop outcomes-based measures that can be useful to policy-makers, employers, financial service professionals and households, in the quest to improve the financial wellness of South African families, individuals and communities.

To see Momentum, Unisa Wealth report PDF click here.