The Momentum / UNISA Household Wealth Index 4th Quarter 2014

Stagnant Wealth Accumulation in 2014 - a cause for concern for South Africans.

South African households were dealt a hefty blow in 2014 as the value of their real net wealth virtually stagnated compared to 2013.

Research by Momentum/Unisa shows that South African households’ real net wealth per capita increased by only 0.8% during 2014. Real net wealth per capita increased to an estimated R114 547 at the end of 2014 from an estimated R113 634 a year before.

As net wealth is a subcomponent of financial wellness, the below par increase in households’ net wealth is a setback for their quest to become financially well.

According to the Momentum/Unisa South African Household Wealth Index the net wealth of households was negatively affected by a decline in the value of their net wealth during the second half of 2014 following a strong increase during the first two quarters. South African households’ real net wealth increased from R6 088.8 billion at the end of the fourth quarter of 2013 to R6 523.1 billion at the end of the second quarter of 2014. However, from there real net wealth declined by R287.5 billion to end the year at R6 235.6 billion.

The main cause for the poor performance in the value of households’ real net wealth was the decline that occurred in the value of financial assets during the second half of 2014. Financial assets that mainly consist of investments in retirement funds and direct investments on the financial markets suffered from the decline in share prices of companies listed at the JSE. The JSE All Share Index declined from 50 945 points at the end of the second quarter of 2014 to 49 771 points at the end of last year. Had it not been for a slow increase of only 0.3% in the value of real household liabilities to R1 399.2 billion at the end of 2014, real household net wealth may well have declined in 2014.

Further analyses shows that 2014 had indeed been a tough year for consumers; that they use too much of their income to repay debt; save insufficiently; and that South Africans’ net wealth falls way short of that of developed countries.

An indication of the hardship experienced by South African households stems from the ratio of surrenders to after-tax income (after subtracting income- and wealth taxes). This ratio hovered around the 2% mark, but increased to 2.33% in 2013 and further to 2.34% (as surrenders reached R57 billion in 2014).

Analysis shows that in 2014 households on average apportioned 23.48% of their after-tax income to repay debt (capital, interest and fees). In contrast, compulsory savings in the form of contributions (employer and employee) to official and private retirement funds amounted to only 4.55% of total after-tax income. Disconcertingly, this ratio had been on a downward trend since 2010 when it was at 4.93% of after-tax income.

Lastly, South African households’ net wealth compares unfavourably with that of developed countries. Whereas South African households’ ratio of net wealth to disposable income averaged 351% in 2014, the same ratio for Japan was 731% at the end of 2012. During the middle of 2014 the same ratio for the United States of America was 618%, while that of Europe and Australia was 685% and 651% respectively.

The analyses show that South African households earn an insufficient amount of income, save insufficiently for retirement, take up too much debt and perform unsatisfactory in terms of wealth accumulation.

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