An increase of R39 billion in the value of household debt and a decrease of R1.19 trillion in the value of household assets saw South Africans’ wealth (expressed in current prices) decrease by about R1.23 trillion in the second quarter of 2022 to R15.75 trillion, according to the latest Momentum-Unisa Household Wealth Index.
This decline means the value of household wealth was at the same level it was a year ago.
If this lower level of household wealth persists, it will contribute to slower growth in household consumption expenditure, which should adversely affect economic growth and employment.
Momentum-Unisa research shows that a 1% change in real household wealth can, on average, be associated with a 0.8% change in real household consumption expenditure. And household expenditure affects economic growth, which affects employment. Increasing household wealth in the form of rising real asset values could therefore assist in employment growth.
The value of household assets is estimated to have decreased by 6.1% between the first and second quarters, to R18.15 trillion. However, this was 1.4% higher than a year before.
Household debt increased to about R2.67 trillion.
Value of financial assets declines
A decline in the value of household financial assets in the second quarter was the main reason for the decrease in household wealth.
Financial assets comprised an estimated 63.9% of total assets in the second quarter, down from 66.3% in the first.
The largest financial asset component, households’ investments in retirement funds and long-term insurance products, constituted 36.9% of total assets in the second quarter, down from 37.5% in the first.
Other financial investments – such as unit trusts, shares and bonds – comprised 17.9% in the second quarter (down from 20.7%) and deposits 9.1% (up from 8.4%).
The declining share of the two “risky” financial assets components – retirement funds and long-term insurance, as well as other investments – and the increase in the “safer” deposit component suggest that higher risk aversion contributed to the decreasing value of financial assets.
Such risk aversion contributed to a decrease of R553.7bn in the value of retirement funds and long-term insurance, and an even larger decrease of R776.9bn in the value of other investments.
The increase of R30.3bn 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.
Why risk aversion rose
The higher risk aversion that affected the value of financial assets accrued from aggressive increases in interest rates by various central banks.
In the second quarter, US Federal Reserve 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 the first quarter, these increases occurred at a faster pace and were of greater magnitude – as central banks “front loaded” rate increases to contain high consumer price inflation emanating from, among other things, 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 caused share prices to decline and bond yields to rise.
The FTSE/JSE All Share Index lost 12.3% in the second quarter, and the All Bond Index lost 3.7%. As households’ retirement products and other investments are invested in, among other assets, shares and bonds, this contributed to a 10% decline in the value of financial assets in the second quarter.
In contrast, non-financial assets, such as residential buildings and durable goods, increased by 1.6% in the second quarter, limiting the decline in the value of total household assets to 6.1%.
Increase across all liability categories
On the other side of the coin, households’ outstanding liabilities increased by about R39bn in the second quarter to R2.67 trillion. However, seasonal factors and higher interest rates ensured a lower increase than the R70.2bn of the first quarter.
All the main liability categories – mortgage bonds, vehicle and other secured loans, unsecured loans and credit facilities, and other liabilities such as municipal debt and other accounts in arrears – increased in the second quarter.
Momentum-Unisa estimated outstanding mortgages increased by R19.2bn, vehicle and other secured debt by R7.4bn, unsecured loans and credit facilities by R6.2bn, and other liabilities by R6.1bn.
However, because increasing interest rates impacted the uptake of other debt, the growth in household debt slowed to 1.5% in the second quarter from 2.7% in the first quarter.
Johann van Tonder is a researcher and economist at Momentum’s Insights Division.
