Financial stress eats away at consumer confidence

Although consumers are trying to stay resilient, they are losing faith in the economy.

Financial stress is eating away at the confidence of South African consumers as they battle to keep their heads above water and the lights on.

The findings of the 2023 Old Mutual Savings and Investment Monitor confirms how stressed South African consumers are. Forty-five precent say they are considerably financially stressed, while 70% are trying to cope with incomes that have not improved since 2020.

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The report reflects the views of just over 1 500 employed South Africans with personal monthly incomes ranging from R8 000 to R 99 999 on the many everyday financial challenges they face. In addition, the study explored what they do to cope, as well as their views on matters ranging from financial priorities to debt management.

“The primary objective of the study is to better understand the savings behaviour and financial attitudes of working South Africans and how they stretch household budgets and incomes. Most importantly, the research also shows how they save for the future,” says Vuyokazi Mabude, head of knowledge and insights at Old Mutual.

“The 2023 Report shows there were marginal improvements in a few key indicators, including some recovery of income streams post-Covid-19 and a slight improvement in financial satisfaction and financial stress.”

Confidence in economy lowest ever

However, he is concerned that their confidence in the economy is at the lowest level yet recorded in this survey, down from 56% in 2015 to 27% in 2023, while other measurements on an upward trajectory stagnated, reversing positive trends in saving and other activities.

“The depreciating rand and power crisis undoubtedly contributed to the erosion of consumer confidence in the economy. Load shedding, apart from the perceived psychosocial impact, placed direct pressure on budgets as consumers juggle priorities and in some cases borrow money to fund alternative power solutions.”

Some of the most notable findings in the report are:

• 70% of South Africans do not see any improvement in their income since 2020 and 45% remain considerably financially stressed.
• Consumers struggle to build savings buffers, with 30% claiming to have savings that would last them for only one month or less.
• Reactions to the proposed Two Pot retirement reform remains mostly positive or mixed.
• Debt levels are increasing and debt is considerably more expensive to service.
• 33% of home loan holders struggle to meet their monthly repayments or fall behind on payments.

This is what the responses said about income security:

• One out of two worry about losing their jobs.
• 50% are ‘poly-jobbers’ and have more than one stream of income.

They also borrowed more in the past year:

• 54% of those surveyed say they dipped into savings to make ends meet.
• 43% borrowed money from family and friends.
• 34% took out a personal loan in the last year, double from 16% in 2020
• 73% of respondents have a credit card, 35% have a home loan and 41% have car finance.

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How financial stress influences savings

This is what they said about savings:

• 53% said they do not have enough money for unplanned circumstances.
• 62% have little to no savings buffer should they no longer have an income.
• The appetite for offshore investments has grown from 24% in 2022 to 27% in 2023.
• Stokvel usage among black working South Africans dropped from 53% in 2022 to 48% in 2023 and there is a general decline in informal savings such as stokvels, grocery schemes and burial societies.
• In 2023 there was an increase in travel clubs or stokvels driven by higher earning members.
• 65% of stokvel members belong to at least one stokvel that grants loans to members.

Other notable findings included:

• The appetite for crypto declined in 2023, although 56% are still likely to buy crypto in the next year.
• Confidence in government’s ability to help people who are unable to help themselves declined from 29% in 2022 to 21% in 2023.
• The ‘Sandwich Generation’ (people supporting not only children but also parents and other older dependents) increased from 39% in 2022 to 43% this year.
• 15% of working South Africans are single mothers and 47% of them do not receive maintenance support. They are one of the more financially stressed and indebted groups.

“Despite the ongoing financial pressure, people save but struggle to manage short term and long-term priorities. The top three savings goals are primarily for retirement, building emergency buffer savings and paying off debt,” says Mabude.

“To increase household income, South Africans hold down several jobs. Poly-jobbers make up 50% of this market, with more young workers (18 to 29 years old) becoming part of this growing trend. The number of young poly-jobbers is up from 60% in 2022 to 70% in 2023, with many using social media to supplement their incomes. Generally, however, these inflows are a minor portion of overall incomes earned.”

Mabude says as consumers moved to reduce costs, the short-term insurance sector and medical schemes were affected as consumers reduced their cover when trimming their monthly premiums to help increase household income.

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What are consumers doing to survive?

Being more resilient in these financially troubled times means finding ways to stretch budgets, he says. The survey shows how consumers stretch their budgets:

• 70% use rewards and loyalty programmes, up from 66% in 2022.
• 40% changed to cheaper TV streaming options.
• 36% switched to cheaper supermarket brands.
• 33% reduced reliance on domestic help.
• 29% moved to more affordable cell phone or data options.
• 29% put major purchases on hold.
• 27% cancelled gym memberships.
• 21% opted to repair rather than replace appliances.
• 13% downgraded their rented properties.
• 11% moved their children to less expensive schools.

While many South Africans take steps to consolidate savings and reduce debt, others find swifter solutions to generate income by taking big risks:

• The number of people gambling online increased in 2023 from 44% in 2022 to 49%.
• The number of risk-inclined people remained stable in 2023, with those prepared to take substantial financial risk dropping to 21% from 23% in 2022.

Other statistics reveal that:

• Investment risk appetite correlated with men and younger people more willing to assume risk.
• Those ready to take above-average financial risks for above-average returns was 28% in 2022 and 27% in 2023.
• People prepared to take average risks to earn average returns grew from 31% in 2022 to 36% in 2023.
• Those not willing to take any financial risks reduced to 16% in 2023 from 19% in 2022.

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How consumers dealt with rolling blackouts

What respondents did to combat rolling blackouts:

• One in three people spent on inverters and UPS solutions.
• Almost 20% invested in generators (shared and owned) or solar panels. The average spend on alternative energy solutions is just over R 11 000.
• 1 in 3 people reported replacing appliances due to power surges.
• At least 61% bought rechargeable lamps.
• 11% invested in solar water heating panels.

“Loadshedding undoubtedly put a damper on the economy, while rising inflation continues to discourage savings. These and other factors, including high levels of unemployment, remain a barrier to growth,” Mabude says.