How Covid-19 gutted consumer finances

Everybody knows that Covid-19 has had a disastrous impact on the economies of countries and the finances of individual consumers, but it is only when you see the actual statistics that you realise the extent of the devastation.

The percentage of South Africans who are feeling the financial pain of Covid-19 increased to 82% in December, 3 percentage points more than in November and only 2 percentage points less than the peak of 84% in June, although most industries are fully operational. Millennials are the hardest hit at 86%, up 6 percentage points from November.

In a survey by credit bureau TransUnion to measure the pandemic’s financial impact on South African consumers, only 12% indicated that their household finances were going as planned during 2020, with 69% saying their finances were worse off than planned.

Cutting payments

A high number of impacted consumers, 84%, are still concerned about their ability to pay their bills and loans, and if they have to skimp on payments, credit product payments are still the ones consumers most often indicate they will not be able to pay, with personal loans (37%), retail/clothing store account (32%) and credit card bills (32%) at the top of the list.

The financial devastation is also clear in the percentage of consumers who are cutting back on saving for retirement (26%), using money from savings (35%) or borrowing from family and friends (25%) to increase their cash flow.

However, South Africans are known for their optimism and 68% of impacted consumers indicated that they are optimistic and 19% pessimistic, while 13% indicated neither. The younger generations are more optimistic than older generations.

This is what financial devastation looks like:

• 37% had their work hours reduced, mostly in retail, information technology, financial services and manufacturing
• 18% have lost their jobs, just 3% less than the highest level reported in August (21%) and substantially higher than April (10%)
• 52% who reported they have lost their jobs are millennials
• 40% who reported job loss are from Gauteng.

Managing household budgets

According to TransUnion, it is also clear that consumers have been making changes to their household budgets since the beginning of the pandemic to increase their ability to cope with decreases in their household income. This is what they are doing:

• 59% have cut back on discretionary spending
• 43% have cancelled subscriptions or memberships
• 33% have canceled or reduced digital services
• 66% expected to spend less on dining out, travel and entertainment in the next three months
• 27% planned to buy holiday gifts, but 67% expect to spend less
• 13% expected to spend the same amount on holiday gifts and 13% expected to spend more
• 23% will reduce retail spending by a little in the next three months
• 32% will reduce retail spend by a lot.

Game plans

Consumers were also asked to say how they planned to survive financially:

• 35% will use money from savings
• 57% plan to borrow from family members other than parents
• 48% will borrow from parents
• 47% will borrow from friends
• 8% will try a crowd-funding site
• 19% indicated they have received a payment holiday
• 39% are making full payments on their home loans
• 37% are making full payments on their vehicle loans.

Credit monitoring

It was clear from the survey that digital fraud related to Covid-19 is still growing as a threat, with 42% of households reporting they had been targeted, up 14 percentage points from the 28% average reported in the first four weeks of lockdown. Scams related to unemployment are still the most common scheme (31%).

Households have also learned by this and now check their credit at least weekly (25%), significantly up from May (9%). In addition, 55% said that monitoring their credit was very or extremely important, up from 43% in May.

The survey was done online with 1100 adults in South Africa, from 1 December 2020 to 3 December 2020, in partnership with third-party research provider Qualtrics.

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