Consumers becoming less financially vulnerable – survey

Consumers are becoming less financially vulnerable, according to a survey of the first quarter of the year, as their personal finances improved thanks to a recovery in the income of especially middle and higher income groups.

However, the majority are still more concerned about their finances than their health during the pandemic, with the majority of 30.7% of respondents believing consumers are more focused on their finances than on staying safe from Covid-19 and 26.7% saying that consumers still value their finances, but attach a high value to staying safe.

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The Momentum-Unisa Consumer Financial Vulnerability Index (CFVI) for the second quarter of 2020, when the lockdown started, was 35.4 points. In the first quarter of 2021, the CFVI improved to 49.7 points from 47.5 points in Q4 2020. The respondents are researchers, bankers, insurers, retailers, government officials, economists and analysts who deal with consumers daily.

The good news is that consumer expenditure, savings and debt servicing also improved and were actually higher than in the fourth quarter of 2019, except for savings:

• The income index increased from 47.7 points in the fourth quarter of 2020 to 50.2
• The expenditure index improved from 49.2 points in the fourth quarter to 52.3
• The savings index increased from 1.5 points in the fourth quarter to 48.8 points
• The debt servicing index rose from 45.8 points in the fourth quarter to 47.5 points.

This was a good start to the year, but South African consumers are not out of the woods yet, with the majority of consumers still feeling financially exposed and insecure. This means that any small adverse event, such as a pay cut, can contribute to a large deterioration in the state of their personal finances.

Measurement scale

• The measurement scale of the index rates between 80 and 100 points as extremely secure and between 60 and 79.9 as very secure, with points above 60 regarded as having a cash flow position that is under control with little threat of becoming financially vulnerable.
• Between 50 and 59.9 points is rated as mildly exposed and between 40 and 49.9 points as very exposed, with consumers whose cash flow has been affected so much that it creates a high risk of becoming financially vulnerable or insecure if they score between 40 and 59.9 points.
• Consumers with a score of between 20 and 39.9 points are regarded as very vulnerable and those scoring below 19.9 points extremely vulnerable, with their cash flow affected to such an extent that it creates an actual experience or sense of being financially insecure and unable to cope.

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Why consumers are becoming less financially vulnerable

• The fact that income vulnerability decreased suggests that more consumers were able to earn or increase their income. Consumers now had a greater chance to retain or find employment and they had better income earning prospects.
• Consumers’ expenditure vulnerability is supported by the recovery in employment as well as their ability to not exceed their incomes and remain within their budgets.
• The decrease in their savings vulnerability can be attributed to the recovery in income as well as the fact that and more consumers are living within their means, but they still did not have greater access to emergency savings.
• Consumers were less vulnerable in terms of debt servicing capabilities because low interest rates helped to limit debt servicing costs.

The main interventions or changes needed for consumers to recover financially are:

• improvement in the local economy to stimulate job creation
• financial discipline by limiting unnecessary expenses and saving more
• financial planning, including setting attainable financial goals
• increased financial literacy
• additional income or starting their own businesses
• limiting credit uptake and repaying existing debts.

The respondents noted that while South African consumers are resilient and some have started to adapt, they will require external support in the form of job creation and skills development, especially in poorer communities, to recover financially.