Yes, debt levels are high, but so is wealth
September 21, 2007
By Ethel Hazelhurst
Johannesburg - Though South Africans are more deeply in debt that ever before, they are also wealthier.
The net wealth of households as a ratio of disposable income rose strongly from a low of 298 percent in 2002 to 317 percent in the first half of this year, according to the Reserve Bank's annual economic report, released yesterday.
Net wealth is the difference between total household assets and household debt. The ratio of household debt to disposable income, which rose from 63.5 percent in 2005 to a record 76.6 percent in the second quarter, is often in the headlines. But the fact that households have increased their assets is rarely mentioned.
A big contribution to the increase in household assets came from the performance of the JSE during this period. The bank said the local stock market produced 39.7 percent annualised returns over the five years between December 2001 and December 2006.
This positions the JSE as the second-highest of 10 selected emerging markets, behind Russia at 50.3 percent and followed by Brazil at 38 percent.
This increase is reflected in changes in the composition of assets. A table on the composition of household balance sheets showed shares made up nearly 33 percent of households' total assets last year.
Household ownership of shares increased steadily from 17.6 percent in 1980 to 19.9 percent in 1990 and 23.2 percent in 2000.
However, deposits with banks and Postbank are falling relative to other assets.
Last year deposits constituted 7.6 percent of the total, down from 15.5 percent in 1980, 13.7 percent in 1990 and 9.7 percent in 2000.
Contractual savings are also falling in relation to other types of wealth accumulation.
The table shows investments in pension funds, life insurers, participation mortgage schemes and deposits with the Public Investment Corporation represented 29 percent of the whole, down sharply from 40 percent in 2000.
Nedbank group chief economist Dennis Dykes said savings were declining, not only in relation to other assets but also in absolute terms.
"Perhaps as wealth increases people may find less need to save," he said.
"An additional factor is that people can now withdraw equity from their homes to meet short-term needs, which reduces savings," he said.
But the declining importance of traditional savings products is also due to the rise in the value of shares, as well as the increase in the value of residential property.
After strong growth in the property market this decade, the value of residential buildings rose to 25 percent of assets last year, from 18.8 percent in 2000 and in line with 1980, when they were worth 25.5 percent.
The last quarter saw a halt in the protracted decline of savings within the household sector as a percentage of gross domestic product.
This ratio declined from 6.75 percent in the second half of 1992 to 1.5 percent in the second half of last year, the level at which it remains.
Savings is defined as income minus expenditure. According to the annual report: "The bottoming out of the savings ratio in the first six months resulted from a slowdown in the growth of households' final consumption expenditure, while their disposable income maintained a robust pace of increase."
This is a sign that the 3 percentage point total rise in interest rates since June last year is curbing spending.
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