The financial health of South African households improved in the second quarter of 2024, thanks to rising real salaries and an uptick in private-sector employment.

However, the reliance on insurance surrenders to boost finances raises red flags, as it may not be sustainable in the long term, warns economist Roelof Botha, who compiled the Altron Fintech Household Financial Resilience Index (AFHRI).

Despite this, other positive factors like the recent influx of funds from the two-pot pension system and the prospect of interest rate relief suggest households may see continued financial stability.

Improvement in Financial Resilience

Research by fintech group Altron has revealed that the ability of South African households to manage and service their debt improved in Q2, thanks to a combination of rising employment, better salaries, and insurance surrenders.

The AFHRI climbed by 0.7% on an annualised basis for the three months ending in June, driven by private-sector job growth, higher real wages, and the cash influx from surrendered insurance policies.

“Obviously, if you surrender your long-term insurance, then you’ve got more money in your pocket,” Botha explained. “But in the long run … it tells you that people have been cashing in, and this is before the two-pot system.”

Long-Term Concerns

While the AFHRI reached 110.7 points in Q2, reflecting a nearly 11% improvement in household resilience compared to the first quarter of 2014, Botha pointed out that long-term financial concerns remain.

The index is only marginally above the country’s sluggish GDP growth rate of 0.4% for the period.

In addition to rising insurance surrenders, the cost of servicing household debt has grown significantly, with the debt-cost ratio increasing from 6.7% in early 2022 to 9.1%.

Botha criticised the South African Reserve Bank’s monetary policy, calling it “overly restrictive” and focused too narrowly on reducing inflation.

Looking ahead, Botha remains optimistic about further interest rate cuts, with hopes for a 50-basis-point reduction in November, alongside the billions of rands from the two-pot stimulus.

These factors, combined with a 1.2% rise in average real salaries in Q2, signal continued improvement in household financial resilience.

“Skills are in demand again, and people are in a position to start asking for higher entry-level salaries,” Botha noted. “As the economy improves, that trend will likely continue.”