Value of households declines
South African households are reducing their debt‚ freeing up disposable income‚ but failing to save for retirement sufficiently.
These were some of the findings of the Momentum and University of South Africa’s (Unisa’s) household wealth report for the third quarter of 2016‚ released on Monday.
According to the report, the real value of households’ net wealth declined by 0.9% in the third quarter‚ following a decline of 2.7% in the second quarter.
Researchers from Momentum and Unisa estimated the real value of household net wealth at R7.3-trillion in the third quarter of last year‚ R16bn down from the figure for the third quarter in 2013.
The decline in household net wealth is a continuation of a trend that started in 2014‚ the report said.
Household net wealth is an indicator of a household’s financial health and wellness.
The figure is calculated by subtracting a household’s liabilities‚ made up of outstanding debt and accounts‚ from its assets‚ which is the value of its goods and investments.
Researchers found that households had managed to cut back on debt but had failed to grow their assets.
“The muted increase in household debt can chiefly be ascribed to a reduction in instalment sales credit‚ which is normally driven by purchases of durable goods, especially new vehicles‚” the report said.
The National Association of Automobile Manufacturers of SA reported that 16% fewer new passenger cars were sold in the third quarter of 2016‚ compared with the third quarter of 2015.
Due to this‚ instalment sales credit‚ the main source of vehicle finance‚ dropped in the third quarter‚ the report said.
Researchers also found a decline in the household debt to disposable income ratio‚ saying one of the reasons for this was disposable income increasing at a faster pace than debt.
“Although households are reducing their debt in relation to their disposable income‚ they remain vulnerable to unexpected shocks‚ such as they don’t have sufficient emergency funds available‚ while at the same time they are not saving sufficiently for retirement‚” the report said.