Financial pain of Covid-19 pandemic gradually receding

The financial impact of Covid-19 has lessened drastically to 62% of consumers in March from 84% in December as the country emerged from the second wave of the pandemic, although nearly 9 out of 10 (87%) of consumers remain worried about their ability to pay their debts.

These latest findings from the Consumer Pulse Report, formerly known as Financial Hardship Studies, by TransUnion shows that South Africans remain upbeat, with 76% of respondents optimistic about the future and 54%  confident their household finances will fully recover in the next 12 months.

Andries Zietsman, head of financial services at TransUnion SA, said this was largely due to the South Africa economy showing signs of increased activity after emerging from the second Covid-19 wave in February.

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Financial impact of Covid-19

However, there it’s not all positive. The number of consumers concerned they will be unable to pay their bills increased by three percentage points from 84% in December to 87% in March.

Compared to the first round of surveys in April last year, the pandemic is still affecting the finances of most households:

• Only 3% of surveyed households indicated their finances have fully recovered from the negative impact of the pandemic.
• Just over half (51%) said they have not yet recovered.
• Almost three in in four impacted consumers (74%) have cut back their discretionary personal spending.
• 42% cancelled subscriptions and memberships.
• 38% cancelled or reduced digital services.

Consumers, whose household income has been reduced, said they will not be able to pay:

• mashonisa (informal) loans (46%)
• personal loans (44%)
• private student loans (44%)
• retail/clothing store accounts (39%).

However, 39% said they are planning to pay partial amounts towards their debt to remain current, while just under half of respondents (46%) report being past due on a bill or loan in the past three months.

ALSO READ: How Covid-19 changed the way we pay our debts

Respondents said the biggest household spending changes they will make over the next three months to manage expenses, will be to spend less on themselves (61%) and buy less clothing, electronics and durable goods (46%) in-store and online.

After a year into the study, Zietsman says there are signs of consumer resilience as part of a broader recovery, although South Africa’s economy and consumers are still under severe financial pressure.

“The biggest indicator of this is the fact that the majority of consumers are still struggling to pay their bills on time and credit providers are going to have to find innovative ways of managing this.”

Did consumers learn something?

It is also evident consumers learned something about looking after their financial well-being in case of an emergency such as Covid-19. Respondents acknowledged that savings as well as credit are increasingly important during this uncertain time, with 83% of households reporting they now view savings as more important than before the Covid-19 pandemic, while 91% consider access to credit as important and 23% as extremely important.

The respondents also said the main reasons that they do not apply for credit were that:

• The cost of new credit was too high (26%)
• They believed their application would be rejected due to their income (32%)
• Their credit history was not good (25%).

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Nearly all (99%), think saving for unexpected events or financial setbacks is important, but they said insufficient income (61%), high expenses (45%) and unexpected emergencies (39%) are obstacles to achieving their financial goals.

“Consumers who think they are going to default on any payments in the coming months should contact their credit providers early. Don’t wait until you miss a payment before you get in touch to discuss potential options. It’s also important to check your credit report, particularly if you’ve defaulted on a payment or have a judgment against you from the past,” said Zietsman.

Fraud awareness

The pandemic created even more opportunities for fraud, but consumers are also becoming wiser:

• 37% of the respondents said they are aware of a fraud attempt
• 5% became victims of fraud
• Four in 10 (41%) feel it is extremely important to monitor their credit score, 20% more than in November
• 44% said they check their credit reports to protect against fraud
• Unemployment-related scams remain the most common scheme (29%)
• Phishing (28%) remains a problem
• Third-party seller scams on legitimate online retail websites (24%) were also noticed.