South African households' wealth increase despite subdued economy

This increase was mainly driven by strong growth in the value of household assets, specifically financial assets. At a cursory glance, the strong growth seems to be a positive indicator. However, the increase can realistically be described as fragile as households are predominantly relying on volatile and overpriced share prices for growth in the value of their financial assets and wealth.

A further related indicator - which is cause for concern - is the slow growth in workers' contributions to retirement funds. Such contributions remained virtually stagnant compared to a year ago (up 0.9%) signifying pressure on households to save more. So, by not saving more and mostly relying on share prices for asset growth, households overexpose themselves to the fragility and volatility of international markets for growth in their wealth.

Alarming observation

Another alarming observation is the increase in borrowing to finance daily consumption. Although a large portion of household debt is used to finance residential assets as well as asset-backed goods such as vehicles (depreciating asset), furniture or electronics, a growing portion of debt is allocated towards living expenses.

The fastest growing debt type is credit card debt which was 9.7% higher than a year ago. Contrastingly, instalment sales credit grew at almost half the pace (5.9%), while the growth in unsecured loans (3.7%) and mortgages (2.7%) also levelled off (3.7%).

Households failing to budget or implement meaningful financial wellness planning is causing a downward spiral into debt. Households under pressure are either unable or lack the discipline to save for emergencies, grow assets or make provision for retirement.

Not saving sufficiently for investment is indicative of financial strain. Households are borrowing to keep going, which is confirmed by the increase in the proportion of income spent on debt repayment.