Momentum/Unisa Household Financial Wellness Index – Shows roadmap to financial success

The results of the Momentum/Unisa Household Financial Wellness Index show that although the number of financially unwell households increased, they are not quite as ‘financially unwell’ as before. These results, based on a nationally representative survey of 3 073 households, were recently presented at the very first Momentum Science of Success Festival. The survey specifically focused on the financial position of households during 2018.

The survey results

“In order to really get to grips with the tools to accelerate your momentum towards financial stability and success, it’s important to drill down and understand the environment that surrounds every South African household,” the report shares.

Given a tough economic environment in 2018, it is not surprising that households’ state of financial wellness remained flat compared to 2017 – and only just higher than four years ago. The overall score increased just slightly to 67.9 points – from 67.8 points in 2017 and 66.6 points in 2014.

The Momentum/Unisa Household Financial Wellness Index is made up of five components, based on the five capitals that households have. In other words, these are the resources that each household has that makes or breaks its financial wellness.

Although 2018’s overall financial wellness score improved slightly it was driven only by small increases in two of the five components. However, these increases were enough to outperform the declines seen in the other three areas. Several factors at an economic, community and household level contributed to the change.

Component 2018 results
The household’s educational status, determined by the level of their educational qualifications and skills (human capital – HC). These levels improved slightly, with the score increasing to 6.8 in 2018 (from 6.7 points in 2017). The 2018 General Household Survey (GHS) results showed that during 2018 about 45.2% of people 20 years and older had a matric/NSC or higher qualification compared to 43.1% in 2017.
The household’s personal empowerment capability, decided by their ability to take control over their finances and their trust in institutions (social capital – SC). The lowest score was seen in this category, which fell to 4.8 (out of 10) from 5.1 in 2017. It can be attributed to political instability and negative macroeconomic events that are largely beyond the control of households. But, when comparing households that achieved high and low personal empowerment capability scores, it showed that the majority of households actually did poorly on factors they could control.
The income statement of the household, represented by their income and expenditure (physical capital – PC) The score dipped to 5.0 (compared to 5.1 in 2017), showing the cash flow pressures households had to contend with.
The household’s balance sheet, measured by the value of their assets, debt and net wealth (asset capital – AC) Although the asset, debt and net wealth score increased to 5.1 (compared to 4.7 in 2017), it was still low, showing the severe lack of household assets. Though, as income is used to acquire and grow assets – and given the decline in the income and expenditure score – the low net wealth score is not surprising. The low level of household net wealth is worrying, as accumulating wealth over their lifetime is a households’ main financial objective.
The quality of the living environment, determined by the quality of the household’s dwelling (environmental capital – EC. The score decreased to 6.9 in 2018 (from 7.4 in 2017). The low income and net wealth scores show that households battled to get their hands on the resources they needed to improve their living conditions.

The Financial Journey to success

Although there are many factors that a household cannot control i.e. the macroeconomic environment, there are many aspects a household can control that will lead to of financial success.

The analysis of the research indicates that specific and comprehensive interventions are needed for the financially distressed and unstable households to up their game and get onto the path towards financial success. The challenge is also to protect and prevent financially unwell households from becoming more financially unwell.

“It’s not only about stopping a backwards slide. It’s also about pushing households forward. To get that right, they need an empowering environment and the application of the science of financial success in their personal finances,” the report advises.

It’s not just about high quality education and cognitive skills, the financial services industry and specifically the financial adviser has a huge role to play in this space:

Empowering households with facts and personal financial capabilities;
Improving their understanding of the need and role of financial goals, long-term planning, financial advice and financial products; and
Making such advice, planning and products accessible and affordable, while also customising it to their needs (which will make it even more possible for them to take control of their own lives and financial situations).

Click here to download the comprehensive report that provides answers to the following questions:

What are the varying states of the financial wellness of South African households, and why?
Which factors (within and beyond their control) affect the financial success of households?
What impacts the financial success of women?
What practical tips will help accelerate financial success?

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