By Carin Smith for Fin24
Research by Momentum and Unisa shows that 73.5% of SA households were “financially unwell” in 2017.
The research found that, while some households did very well during 2017, others just muddled through, while a large portion struggled immensely.
According to the study, one of the more concerning findings was that the proportion of financially well households was virtually unchanged between 2016 and 2017.
Even more concerning was that the proportion of financially well households was virtually unchanged since 2011.
However, there was a bright spot: The research found that while a large proportion of households was still financially unwell, it also found that these households were not as financially unwell as they had been previously.
Decline in net wealth
The study looked at various factors influencing the financial well-being of South Africans.
One was a decline in the net wealth to disposable income ratio of households, caused by a decrease in assets to disposable income ratio.
The decline was mainly due to negative growth in house prices and real investments in residential property increasing by less than 1% compared to 2016.
In addition, the real value of financial assets was lower during the first half of 2017 compared to the same time a year earlier.
The research further showed many households just don’t have the means and skills needed to take control of their finances.
While more people completed secondary and tertiary qualifications, social capital levels remained low due to feelings of disempowerment, low levels of subjective well-being, financial vulnerability and low consumer confidence in the economy.
There are indications that, although the SA educational system delivers a growing number of matriculants and graduates, the students predominantly acquire academic knowledge and not high-level cognitive, social and communication skills.
It furthermore looks like an improvement in education did not translate into a proportional increase in income, the study suggested.
This can, to a large extent, be explained by low labour demand growth due to a skills mismatch in the SA economy.
Factors over which households have little control include macroeconomic factors such as low economic growth, high levels of unemployment, political and policy instability, and low levels of business confidence.
The factors over which households do have control include the educational levels of household members, their financial literacy and capability levels, their work statuses, the degree to which they conduct debt and financial risk management and financial planning, the amount of money they earn, and the level to which they save and accumulate their net wealth.
The results of the study have shown that, although households do have control of these factors, they generally don’t budget, conduct very little debt- and financial planning, and generally have very low financial literacy and capability levels.
The research findings suggest that a comprehensive intervention is needed for financially unwell households to become financially well.
Such a comprehensive intervention should be more multi-faceted than merely providing social grants, social housing, free services and financial products, according to the report.
Putting households on a path of financial wellness growth will require high-quality education, an enhancement of their financial literacy and financial capabilities, and improving their understanding of financial planning and other financial services.