Picture: THE TIMES
Picture: THE TIMES

Even though SA households are trying to improve their circumstances by getting more educated, their living conditions are deteriorating as a result of smaller salary increases and higher personal income taxes. 

A survey conducted by insurance company Momentum and the University of SA shows that local households' financial wellness has remained flat in 2018 because of deteriorating living conditions and a reduction in incomes. 

The Momentum-Unisa Households Financial Wellness index measures decline and improvement in households’ financial wellbeing using index points ranging from 1 to 10. Households’ overall financial wellness, which is calculated based on their living conditions, income, education, net wealth and personal empowerment, remained flat at 67.8 out of 100 index points.

Of all five pillars measured, living conditions deteriorated the most from 7.4 points in 2017 to 6.9 index points in 2018. “Based on those five things, we found that only 25% of households in South Africa can be classified as financially well,” said Unisa professor Bernadene de Clercq.

The report defines “financially well” households as those who can financially sustain themselves despite the political, economic and social climate they face.

Unisa research director professor Carel van Aardt, said what they have observed in the eight years of compiling the index is that education attainment in SA was becoming more “delinked” to people’s ability to earn higher incomes.

“While personal incomes have been stagnating, people with matric and tertiary education have increased tremendously. But what we are seeing is that a lot of graduates with degrees are doing work for non-degreed people. There are lots of graduates with degrees that don’t help them and there are lots of people with matric that are excluded from economic activity. And that speaks to the quality of our education,” said Van Aardt.

De Clercq said it was clear that while many households thought attaining more education would help with their financial standing, education would not be an answer to everything.

Van Aardt said macro developments, such as the stagnant economy that is causing job losses and share price declines that shrank households' wealth, were to blame. In many instances, people were worse off because of financial illiteracy.

He said what they observed was that the financial wellness of some of the poorest households was better than that of their high-earning counterparts.

“There’s a lot of poor households that are doing well, even in this tough economic environment, because they know how to budget, while a lot of the affluent people are burning their money,” said Van Aardt.

He said many high-earning households were struggling to do their own asset allocation and this contributed to the decline in their real household wealth when stock markets were not doing well. At the same time, many preferred to handle their own finances instead of using financial advisers.