South African households richer in 2017

Despite all the negativities surrounding them, South African households have something to cheer about—collectively they managed to end 2017 in a richer state. This is good news as the financial purpose of households is to build their wealth and in so doing improve their chances of being financially well.

A Momentum/Unisa Household Net Wealth Index report released earlier this month has shown that South Africans got richer last year, albeit on an unequal footing. The report said that households’ real net wealth increased by R451.6 billion in 2017 to R7.3trillion—the first real yearly increase since 2014.

The real value of household net wealth is often mistaken as their net income. However, it actually is the difference between the real value of their assets and liabilities. Household assets mostly consist of the value of their retirement funds, other financial investments, and residential buildings; while their liabilities typically comprise their outstanding credit and other debts.

The increase in households’ net wealth in 2017 can be ascribed to a strong increase in the real value of their financial assets in the second half of 2017, while they kept their borrowing in check. The respective increases in the real value of households’ financial assets and liabilities are estimated at 7.9% and 2.4% from the end of 2016 to the end of 2017. Financial assets, in turn, received a boost from the strong performances of listed shares and bonds—the instruments in which households’ retirement funds and other savings are invested in. As for liabilities, it seems as if households’ arrears in terms of borrowing declined during 2017, but that their arrears commitments towards, for instance, municipalities, increased sharply.

Despite the increase in households’ real net wealth during 2017, not all households shared equally in this positive development. Financial Wellness research performed by Momentum/Unisa revealed that the top 20% household income earners own 72.2% of households’ net wealth, while the bottom 20% possess only 2.7%. This is not surprising, though, given that income is unequally distributed in South Africa, and net wealth is a function of how households use their income.

At the same time, though, it is difficult to perceive the majority of the top 20% household income group as rich—as they earn between R20 000 and R45 000 per month. Given the income taxes they pay, the proportion of their income they use to repay debt (instalments), the high prices of transport, education and medical care, as well as the recent steep increases in the prices of food, they have a number of financial challenges to confront—hardly the characteristics of a rich household.

The 2017 Momentum/Unisa Household Net Wealth Index report is compiled by:

Johann van Tonder, Financial Wellness Researcher & Economist, Momentum

Professor Carel van Aardt, Bureau of Market Research, Unisa

Professor Bernadene de Clercq, Department of Taxation, College of Accounting Sciences, Unisa

You can read the complete report here.

Publish date: 2018/04/18