The real net wealth of South African households increased by around one trillion rand between the start of the second quarter of 2020 (Q2 2020) and the end of the year (Q4 2020).
This was a key finding from the latest Momentum-Unisa Household Wealth report, which shows household wealth has recovered despite Covid-19, the foreclosure, job losses and an economic contraction.
This recovery follows an estimated drop of Rand 772.8 billion in the first quarter of 2020 that resulted from the introduction of lockdowns in many countries – including South Africa – to limit the spread of Covid -19.
Momentum-Unisa said the real value (expressed in 2010 prices) of household net wealth rose to 7.7 trillion rand at the end of the fourth quarter of 2020. This is 36.3 billion rand more than ‘a year ago.
The increase in household net wealth has been even more dramatic when measured in nominal terms (current prices). Household net wealth is estimated to have increased by R9.5 trillion between the end of the first quarter of 2020 and the end of the fourth quarter of 2020.
Unisa said the huge increase in household net wealth can mainly be attributed to strong growth in the value of financial assets such as stocks and bonds.
He added that pension funds and household financial investments have benefited enormously from the increase in these financial instruments.
“The real value of household net wealth has fluctuated over the year. It declined sharply in the second half of March 2020, when Covid-19 began to spread around the world and governments responded with lockdowns.
“It has driven down the value of all types of assets. However, the decline was more pronounced in the value of financial assets. “
Momentum said the recovery in asset values began in April 2020, stagnated in the third quarter of 2020, and accelerated again in the fourth quarter of 2020.
“At the same time, the outstanding household debt fell in the second quarter of 2020, as household debt repayment exceeded recourse to new credit. However, there has been a steady increase in the granting of new loans to households from Q3 2020. ”
The researchers said the first indications were that the real value of household wealth is expected to increase further in the first quarter of 2021.
Continued liquidity injected into financial markets and a stronger underlying economy should support financial assets. At the same time, unsecured debts seem to be increasing at a slow rate.
What makes someone rich?
As is the case in most countries, household wealth in South Africa is more unequally distributed than household income. In the case of South Africa, the distribution of household net wealth is very uneven.
The Momentum-Unisa Household Finance database revealed that the top 2% of households held roughly 50% of South African household net wealth just before Covid-19 and lockdown. The richest 10% held 75.5% of household net wealth.
In comparison, the poorest 16% had a negative net wealth position, meaning that what they owe in debt exceeds what they have in assets.
Although the next 41% of households have a zero to positive net wealth position, the combined position of the poorest 57% (poorest 16% and the next 41%) shows that they cumulatively hold 0% of the wealth. household net wealth.
However, analysis of the wealthiest households revealed that many of them are not among the highest earning groups.
They were middle-income earners, while many of the households in the higher income groups have a negative net wealth position – meaning their debts exceeded their assets.
“This, again, confirmed that earning a high income is not a guarantee for a high net worth position. It’s what you do with your income that plays a huge role in creating wealth, ”the researchers said.
Further analysis of the Momentum-Unisa Household Finance database identified a few common traits among the richest 10% of households.
They accumulated savings in retirement funds and other financial instruments such as stocks and unit trusts, while their debts were affordable.
The richest 1% to 2% households also owned high-value properties in addition to large financial assets.
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