Macro-economic policy and personal finance influences on wealth inequality in South Africa

Abstract

In South Africa, high levels of wealth inequality have persisted since 1994, to the extent that 1% of the population owns 50% of the wealth. Many South Africans lead marginalised lives as consequence of wealth inequality. This study employed a quantitative behavioural life-cycle model to investigate how macroeconomic policies and personal financial choices influenced wealth inequality in South Africa over the period 2010 to 2019. Results show that there was a negligible decrease in wealth inequality. Most South Africans do not possess enough wealth for personal financial management to influence wealth inequality negatively. Policies to redistribute wealth are unable to meet wealth redistributive targets. To reduce wealth inequality through personal financial management, household resource allocation should prioritise education in labour sectors that possess a critical shortage of skills. This will provide a mechanism for wealth accumulation through stable and higher future income levels. Government redistributive policies should change from predominantly lump sum transfers to the targeting of high labour market absorption. An open labour market would support private and foreign direct investment, strengthening economic growth and providing the marginalised upliftment through increased income and the opportunity to accumulate wealth.