Consumer finances crumble under pressure of rising prices and interest

Consumer finances unsurprisingly crumbled under the pressure of rising prices and interest rates in the second quarter of 2022, with every subcomponent of the Momentum-Unisa Consumer Financial Vulnerability Index deteriorating, including income, expenditure, savings and paying off debt.

The latest Momentum-Unisa Consumer Financial Vulnerability Index (CFVI) indicates that consumer finances have dipped back into a very exposed state. According to Johan Van Tonder, economist for financial wellness at Momentum, this prominent decline can be attributed to steep increases in the prices of fuel and food products, load shedding, increasing interest rates and low economic growth.

Consumers now have to handle all these rising costs while they have limited access to the tangible resources that consumers would otherwise use to overcome their financial challenges.

According to the index, the country’s debt servicing capabilities remain the greatest constraint on consumers.

“In fact, it was found that the ability for consumers to service debt worsened to the extent they had to seek outside assistance to cope with their debt burdens,” Van Tonder says.

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Side-effects of consumer finance stress

In addition, the research identified the side-effects of a more financially vulnerable society, which includes great strain on relationships with family, friends and co-workers. At work this financial vulnerability also consumes the thoughts of consumers and negatively affect their productivity.

The good news is that this financial vulnerability had an overall positive impact on consumer financial behaviour.

“It changed mostly for the better in reaction to the higher financial vulnerability experienced. It makes sense as increased pressure tends to make consumers more cautious and behave with more prudence when it comes to their money,” says Van Tonder.

Several risk factors to consumer finances were identified in the report. Steep increases in municipal tariffs will pose a further risk to consumer finances in the third quarter in addition to current risks, such as higher interest rates, higher fuel and food prices and load shedding.

“We have seen record high fuel and food price increases. Add to this a sudden rise in interest rates and it is no surprise that our consumer finances will remain vulnerable going into the third quarter of the year.”

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Expectations going forward

The latest index indicates that the high levels of consumer financial vulnerability will probably persist in the short to medium term due to an increasing number of structural imbalances, downside risks, political and social instabilities and increasing poverty and inequality, as well as governance and government administration deficiencies.

He says the future of our economy is not a positive one and neither is employment or household income. This is going to cascade down in an all-encompassing way when it comes to consumer finances.

Van Tonder offers these tips to improve consumer financial resilience where high food prices make it difficult to prepare healthy meals without going over budget:

• Make a grocery shopping list beforehand and stick to it. Limit your time in the store and only buy necessities.
• Shop around for the best prices on the items that you must buy, using the weekly store leaflets, newspaper advertisements and visiting the stores’ websites or applications.
• Get to know the food prices and write down the regular prices of foods you buy often to help you figure out which stores have the best prices and if you are getting a good deal on sale items.
• Always check the expiry dates on the food items to reduce early spoilage and wasted money.
• Use a basket instead of a trolley as you will have less space and it will force you to limit your purchases to necessities.