South African households R1.2 trillion poorer in the second quarter of 2022
Johann van Tonder, Economist for Financial Wellness at Momentum
South African households’ wealth decreased by an estimated R1.23 trillion (R1 230 billion) in the second quarter of 2022 (Q2 2022) to R15.75 trillion, according to the latest Momentum-Unisa Household Wealth Index.
According to Johann van Tonder, Economist for Financial Wellness at Momentum, should this lower level of household wealth persist, it will contribute to slower growth in household consumption expenditure, which in turn should adversely affect economic growth and employment.
As part of Momentum’s Science of Success campaign, the Household Wealth Index is produced in partnership with the Bureau of Market Research at Unisa. It aims to provide South Africans with information to assist with their journey to financial success.
SUMMARY
South African households’ wealth (expressed in current prices) decreased by an estimated R1.23 trillion (R1 230 billion) in the second quarter of 2022 (Q2 2022) to R15.75 trillion, according to the latest Momentum-Unisa Household Wealth Index.
Should this lower level of household wealth persist, it will contribute to slower growth in household consumption expenditure, which in turn should adversely affect economic growth and employment. Momentum-Unisa research shows a 1% change in real household wealth can on average be associated with a 0.8% change in real household consumption expenditure.
A decline of 10% in the value of household financial assets in Q2 2022 was the main reason for the decrease in household wealth. The value of financial assets, including pension funds and long-term insurance, and investments such as unit trusts, decreased on account of risk aversion. Risk aversion was caused by aggressive interest rate increases by central banks (to contain high consumer price inflation). However, this incited fears of an economic recession in major economies, which will negatively affect world economic growth.
Consequently, the JSE All Share Index lost 12.3% (from the end of Q1 2022 to the end of Q2 2022) and the All Bond Index 3.7%. These declines resulted in a decrease of R553.7 billion in the value of pension funds and long-term insurance, and an even larger decrease of R776.9 billion in the value of other investments.
On the other side of the coin, household liabilities increased by around R39 billion, mainly because of an increase in outstanding credit. About half of the increase stems from growth in mortgages (R19.2 billion). However, due to among others increasing interest rates impacting other debt uptake, the growth in household debt slowed to 1.5% in Q2 2022 from 2.7% in Q1 2022.
Household Wealth
Momentum-Unisa estimates South African households’ wealth decreased to R15.75 trillion in Q2 2022 from R16.98 trillion in Q1 2022. This decline means the value of South African household wealth was at the same level as a year before (see Chart 1).
An increase of R39 billion in the value of outstanding household debt and decrease of R1.19 trillion in the value of household assets combined to register the decline of R1.23 trillion in the value of household wealth in Q2 2022.
It is estimated outstanding household debt increased to R2.67 trillion in Q2 2022, while household assets decreased to R18.42 trillion.
An analysis of the relationship between real household wealth and real household consumption expenditure revealed a strong connection between the two variables. In the long run, a 1% change in real household wealth is on average associated with a 0.8% change in real household consumption expenditure. And household expenditure affects economic growth, which in turn impacts employment. Increasing household wealth in the form of rising real asset values could therefore assist in employment growth.
Household Assets
The value of household assets is estimated to have decreased by R1.19 trillion, or 6.1%, between Q1 2022 and Q2 2022 to R18.15 trillion. However, this was still 1.4% higher than a year before.
Total household assets can consist of financial and non-financial assets. Financial assets comprised an estimated 63.9% of total assets in Q2 2022, down from 66.3% in Q1 2022 (see chart 2). The largest financial asset component, households’ investments in pension funds and long-term insurance (LT-insurance) products, constituted 36.9% of total assets in Q2 2022, lower than the 37.5% in Q1 2022. Other financial investments (such as in unit trusts, shares, and bonds) comprised 17.9% in Q2 2022 (down from 20.7%) and deposits 9.1% (up from 8.4%).
The declining share of the two “risky” financial assets components – namely pension funds and LT-insurance, as well as other investments – and increase in the “safer” deposit component, suggest that higher risk aversion contributed to the decreasing value of household assets. Such risk contributed to a decrease of R553.7 billion in the value of pension funds and LT-insurance, and an even larger decreased of R776.9 billion in the value of other investments. The increase of R30.3 billion in the value of household deposits marginally “softened” the combined decline of R1.33 trillion in the value of these two components of financial assets (see table 1).
The higher risk which affected the value of financial assets accrued from mainly aggressive increases in interest rates by various central banks. In Q2 2022 the Federal Reserve in the United States of America (USA) increased rates by 150-basis points, the Bank of England by 50-basis points and the South African Reserve Bank also by 50-basis points. Compared to Q1 2022 these increases occurred at a faster pace and in magnitude – as central banks “front loaded” rate increases to contain high consumer price inflation (emanating from among others the war between Russia and Ukraine).
These aggressive rate increases (and other factors such as the shortage of energy) incited fears of a looming world economic recession and risk aversion, which in turn caused share prices to decline and bond yields to rise. The JSE All Share Index lost 12.3% in Q2 2022 and the All Bond Index 3.7%. As households’ retirement products and other investments (in for instance unit trusts) are invested in among others shares and bonds, this contributed to the value of financial assets to decline by 10% in Q2 2022.
In contrast non-financial assets such as residential buildings, durable goods and other nonfinancial assets increased by 1.6% in Q2 2022, limiting the decline in the value of total household assets to 6.1%.
Household Liabilities
Households’ outstanding liabilities (mostly credit) increased by an estimated R38.9 billion in Q2 2022 to R2.67 trillion. However, seasonal factors and higher interest rates ensured a lower increase than the R70.2 billion of Q1 2022.
All the main liability categories – mortgages; vehicle and other secured loans; unsecured loans and credit facilities; and other liabilities such as municipal debt and other accounts in arrears – increased in Q2 2022.
Momentum-Unisa estimated outstanding mortgages increased by R19.2 billion in Q2 2022; vehicle and other secured debt by R7.4 billion; unsecured loans and credit facilities by R6.2 billion and other liabilities by R6.1 billion.
Outlook for Q3 2022
Preliminary data indicates that household wealth may recover somewhat in Q3 2022. Should this happen, it can be ascribed to a stabilisation and moderate recovery in share prices.
Calculating Household Wealth
The value of household wealth is calculated by subtracting the value of their outstanding liabilities (debt) from the value of their assets. It is not to be confused with the difference between their income and expenditure.
From the earliest of times households gathered assets. For good reason too, as more assets normally translate to a higher wealth, enabling them to, among other things, live better quality lives. Household assets consist of non-financial (tangible) and financial assets:
Financial assets comprise the largest portion of household assets – consisting of the combined values of their cash balances; savings in pension and retirement instruments; and other financial investments in for instance shares, bonds and unit trusts.
Non-financial assets constitute residential buildings, durable goods1 and other nonfinancial assets. Durable goods include the value of vehicles and household content, while small-scale holdings, livestock, and orchards form part of other non-financial assets.
Household liabilities consist of outstanding credit (including housing-, vehicle- and personal
loans, as well as credit and store card debt) and other debts (such as outstanding municipal
accounts).
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About the Index
As part of Momentum’s Science of Success campaign, the Household Wealth Index is produced in partnership with the Bureau of Market Research at Unisa. It aims to provide South Africans with information to assist with their journey to financial success.
Compiled by:
Mr. Johann van Tonder, Researcher & Economist, Insights Division, Momentum, 081 041 9699
Ms. Jacolize Meiring, Bureau of Market Research, Unisa, 082 354 5777
Sources
First National Bank, House Price Index
JSE. www.jse.co.za
Momentum-Unisa Household Finance Database
National Treasury. www.treasury.gov.za
South African Reserve Bank. Quarterly Bulletin. June 2022. www.resbank.co.za
Statistics South Africa. www.statssa.gov.za
The estimates of this research differ somewhat from official estimates. An estimated value of household durable goods is included in the value of household assets. It forms part of the non-financial assets category.
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