The real net wealth per household in South Africa decreased to levels below that of 2013, according to the SA Household Wealth Index for the fourth quarter of 2015 released by Momentum and Unisa on Wednesday.
The deterioration in the real value of household net wealth is because the real value of household assets declined further in 2015, while their real liabilities increased. Real net wealth per household is estimated at R379 813 in 2015 – which is R6 302 lower than the R386 115 registered in 2013.
According to the report, the strength or weakness of households’ balance sheets as reflected by their liabilities, assets and net wealth, count among some of the most important economic indicators in SA. This is because a strong balance sheet is needed for households to be financially well, which, in turn is essential for their resilience to deal with shocks and to contribute to economic growth.
The report cautioned that negative net wealth realities will have serious consequences for SA households.
It would mean – on average – that their retirement savings will not be sufficient to maintain their current living standard retirement. At the same time they will be forced to cut back on their current life style expenses contributions to retirement funds and savings in general. Also at the same time, they would have to spend less on consumer goods and services, according to the index report.
South African households’ real net wealth decreased to R6.287trn in the fourth quarter of 2015 – R45.1bn lower than in the same quarter the year before. This decrease means that real household net wealth contracted in three of the four quarters of 2015 and ended the year at a level just above that registered in the first quarter of 2014.
This was mainly due to a decline in real assets per household (that decreased to an estimated R466 948 in 2015 from R480 558 at the end of 2014 and an increase in the number of households. One of the reasons for a comparatively weak situation in SA, according to the index report, is the unequal distribution of income that makes it difficult for the majority of households to accumulate wealth.
The real value of SA households’ liabilities increased to R1 442.4bn in the fourth quarter of 2015 from R1 413.4bn in the fourth quarter of 2014. The main reason for this increase can be attributed to a strong acceleration in the pace at which households took up debt during the fourth quarter of 2015.
The increase in household debt during the fourth quarter of 2015 was more likely to have been driven by strong growth in consumption expenditure on durable (cars, furniture and electronic goods) and semi-durable goods (clothing, household furnishings and vehicle accessories) than on fixed assets such as property and residential buildings.
Therefore, the index shows that SA households are borrowing money to acquire consumption goods rather than to accumulate assets. This is regarded as one possible explanation for their net wealth being in such poor state.
If this situation of declining real net wealth per household is not reversed, a growing portion of the middle aged and middle class will turn towards the government for assistance. However, the government is already overstretched given a lack of fiscal resources and not being able to even fully assist the low income groups, the report cautions.