SA consumers’ finances at best level in two years, but remain financially exposed

South African consumers’ financial vulnerability has recovered to its best level in two years during the third quarter of 2021, although their finances generally are still in a vulnerable state and they remain financially exposed. Millions of them have also seen their financial position change due to job losses, while others received the R350 grant that saw them through.

Since the second quarter of 2019, almost 1.4 million workers lost their jobs and income, but almost six million Social Relief of Distress (SRD) grant payments of R350 per month were made in the third quarter, suggesting that the recovery was driven more by the reinstatement of the SRD grant than by job creation, according to the Momentum-Unisa Consumer Financial Vulnerability Index.

The index is compiled from the views of key informants, such as researchers, bankers, insurers, retailers, government, economists and analysts, who deal with consumers and consumer analytics daily.

The index increased to 50.3 points in the third quarter of 2021, following a deterioration to 45.9 points in the second quarter from 49.7 points in the first. This recovery driven by the SRD-grant outweighed the negative impact of the looting and riots.

The spill-over effect of the grant, among others, seems to have a positive effect on all the sub-categories of the index:

•        The income index increased to 50.3 points from 47.4 points in Q2 2021

•        The expenditure index improved from 48.4 points in the second quarter to 52.4 points

•        The savings index improved most, from 42.7 points in the second quarter to 50.6 points.

•        The debt servicing index increased to 47.8 points from 44.9 points in the second quarter.

The index reflects the personal financial situation of all consumers but should not be confused with the financial situation of the small percentage of consumers who are responsible for most of the household income, spending, saving and debt servicing. The majority of consumers remain financially exposed.

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Most and least financially vulnerable consumers

The key informants also indicated who are the most and least financially vulnerable consumers, with 65.6% of them saying that full-time workers in the public service are the least financially vulnerable. They identified consumers earning more than R30,000 per month (62.2%), who are older than 40 (58.1%), work in the services sector (52.7%) and who are mostly males (52.1%) and married couples (45.7%) as the least financially vulnerable.

They also indicated the most financially vulnerable groups, with 62.4% saying people between the ages of 18 and 39 are the most financially vulnerable, 72% adding people who earn below R10,000 per month, 52.1% adding females, 57.4% adding single, separated, divorced or widowed individuals and 34.4% adding unemployed people to the list of the most financially vulnerable.

People also seemed to worry more about their finances than contracting Covid-19, probably due to the stringent lockdown restrictions, with 36.6% of the key informants observing this.

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Knock-on effect of financial vulnerability recovery

However, there was a positive knock-on effect on the other components of consumers’ income statements as more income means more affordable spending and a better position to save more and service their debts, although their debt servicing vulnerability index score remained below 50 points. These changes were thanks to:

•        A decline in consumers’ income vulnerability that can be attributed to millions more gaining from the reinstatement of the SDR-grant and extension of TERS payments compared to those who were negatively affected by the looting and riots.

•        Lower debt servicing vulnerability due to low interest rates and a contraction in new unsecured credit.

•        Lower expenditure vulnerability as more consumers could better afford their expenses, although spending was curtailed by higher food-, municipal- and fuel price inflation, as well as Covid-19 level 4 restrictions.

•        A decline in savings vulnerability, partly due to less income vulnerability, but also because of lockdown restrictions, which prevented more spending, although this really only affected the middle to higher income groups.

ALSO READ: How Covid-19 gutted consumer finances

Key informants‘ expectations for financial vulnerability

Regarding the expectations for the economic environment, 59.1% of the key informants expect that the unemployment rate will increase during the fourth quarter, while 50.0% expect a rapid increase in prices and 40.2% expect the general economic situation in South Africa to get worse.

Only 37.3% of the key informants expect consumers’ financial situation to recover in the fourth quarter, with 30.1% expecting it to remain unchanged and 32.2% expecting it to get worse. Almost 71% expect it will take more than two years for consumer finances to recover, with the majority expecting it will take more than three years.

The key informants also observed that South African consumers generally do not plan their finances in advance, spend more than they earn, do not use credit responsibly, are not good at expanding their incomes, feel more disempowered, do not exercise self-control when borrowing and spending and are not financially literate.