Household wealth index highlights our financial weaknesses
The real value of household wealth has been significantly reduced due to the recession of 2008/2009 – this is one of the key findings of the Momentum/UNISA Household Wealth Index, released last week. Although the results showed an increase in the value of
“An optimist would say, allowing for statistical vagaries, that household wealth has stayed flat for 38 years,” says Gavin Came of Sasfin and director of the Financial Intermediaries Association (FIA). “A pessimist would say that after inflation our households are about 2% poorer.”
Of course, renowned economist John Maynard Keynes once said, “The long run is a misleading guide to current affairs. In the long run we are all dead.”
It is more enlightening, then, to look at the recent trends in the report and analyse the reasons behind the changes. In 2012, the report shows that real household wealth in South Africa grew by 7% after declining by just over 1% in 2011. “It’s good news that, on average, our country’s households have grown wealthier by around double the inflation rate in one year and about 3% above inflation over two years,” Came says. If we go back slightly further, real household wealth has increased by 1.75% a year since 1994.
The financial services industry has grown wealth …
This increase can be said to be a tribute to the efforts of the financial services industry because the value of South African household assets has increased, and financial assets made up 72% of the value of total nominal assets at the end of last year. Bear in mind that, in 1975, retirement assets and assets held with long-term insurers amounted to 13.4% of household wealth; in 2012, the proportion of assets held in retirement funds and with long-term insurers had more than trebled to 38.4% of the average household’s wealth. “This is graphic testimony to what can be achieved by a well-rewarded, motivated and professional financial advisory industry,” says Came. It’s particularly impressive because the industry has to motivate millions to delay instant gratification in favour of a comfortable retirement.
“These figures are supported by the ASISA figures, which show that 607 000 (R3,4bn in contributions) new recurring premium endowments were started in the year ending June 2012 and 236 000 (R1,61bn in contributions) new retirement annuities,” says Came. “This is savings mobilisation on a grand scale.”
This is a significant achievement, but we still have a long way to go towards achieving the kind of retirement saving we’d like to see in South Africa. According to Professor Bernadene de Clercq, head of the Personal Finance Research Unit at UNISA’s Bureau of Market Research, the real household wealth we’re seeing is not sufficient for independent retirement. Even maintaining current living standards may be a challenge, since consumers are purchasing consumption goods rather than asset-accumulating investments.
De Clercq points out that these households have chosen not to accumulate assets, which comes down to behaviour, not economic circumstances. So the question is, how do we bridge the gap?
… but South Africa’s savings are among the lowest in the world
“We are poor savers when measured on a global scale; this is made worse when one views the social support structure in the country,” says Came. “The state old-age grant currently sits at just over R1 300 a month, so many breadwinners face a bleak retirement in the absence of private and employer sponsored savings.”
He says savings by households in South Africa, as a percentage of GDP, remain stubbornly at 1.7% - among the lowest in the world. So we still have our work cut out for us. “Let’s hope that the review of remuneration in the industry and the promised retirement reforms contribute positively to this war against other forces influencing a consumption-driven society,” he says.
Editor’s thoughts:
Perhaps unsurprisingly, the value of financial assets has been driven by the performance of share prices and equity holdings. The Johannesburg Stock Exchange (JSE)’s All Share Index increased by a whopping 45.2%, on an annualised basis, during the last quarter of 2012. Of the financial assets held by households, 9% were comprised of cash, 38.4% of investments in retirement funds and long-term insurers and 24.5% of other financial assets, such as direct investments in the stock and bond exchanges. We know that investing has played a crucial role in terms of increasing household savings, which is why financial education must continue to encourage the retail investor to gain exposure to markets, on however small a scale. How else can we boost our household savings? Comment below or email [email protected].
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