A growing number of South Africans are facing financial uncertainty as they slip from financial security to being unable to see out the month.
Data from the latest Momentum/Unisa Index shows a shift away from households who describe themselves as ‘financially well’. As part of the report, households were divided into four clear groups based on the state of their financial wellness.
The four groups are:
- Financially distressed (0 – 29) – Most of these households live in extreme poverty and misery. They need major outside assistance, which may include government social security transfers, remittances, debt consolidation loans, debt counselling, etc. to improve the financial situation. These households are likely to miss payments and use high-cost credit including unsecured informal microloans.
- Financially unstable (30 – 59) – This type of household is very susceptible to adverse events (such as the loss of a weekly wage), and wrong decisions can change their status to financially distressed. A stable or higher income, good financial decisions, discipline, and planning may present some opportunities to become financially exposed.
- Financially exposed (60 – 79) – Many households in this group earn a low income, but most manage their finances appropriately, whilst some earn a lot, but manage their finances poorly. Expert financial advice and planning may present opportunities for many households in this category to drift towards the financially well position.
- Financially well (80 – 100) – Households in the Financially Well category mostly do the right things and achieve their financial goals. However, negative Covid-19 and pandemic-related challenges contributed to several of these households gravitating from financially well to financially unwell categories.
The majority of the financially distressed consists of households in the lowest income group category, earning up to R24,500 per year.
More than half of these households have primary school as the highest level of education in the household, and over 70% are either unemployed or economically inactive, while nearly two-thirds are female and single.
Households in this category are mainly dependent on government grants and part-time work in especially the informal sector.
Almost 75% of financially unstable households’ are single and more than half of the households have a member that at most completed secondary education.
More than 90% are in the low- and very low-income categories earning below R108,500 per year.
These households tend to be a bit younger and despite some households being dependent on more than one grant as the main source of income, just over half of the financially unstable households depend on salaries and wages as their main source of income – albeit very low.
More than two-thirds of the households in the financially exposed sector have at least one member that completed secondary education, while almost 20% possess a tertiary qualification as the highest qualification in the household.
Just below two-thirds of these households have never been married or are single, and a similar portion are employed. These households mainly earn between R24,501 and R108,500 annually, but some higher-income households also fall within this category.
Income generated through own businesses or from salaries and wages is mostly the main source of income.
Nearly half of the households in the financially well category earn more than R236,900 annually. Nearly half of them have at least one household member which completed tertiary education.
Most of these households have a member who is employed, and mostly between the ages of 25 and 44. The role of higher education and income on a household’s financial wellness is evident from this group. The marital status also plays an important role in the financial wellness of these households as a large share of them are partner-based.
They are often characterised by more than one source of income, which allows the benefit of the pooling of financial resources to better contribute to their household financial wellness.