We are becoming even poorer …

South African consumers have seen a marked deterioration in their finances over the last quarter, to the extent that the nation as a whole is seen as being financially very exposed.

Read: We are getting poorer in SA [Aug 2019]

The recent increase in the cost of living has put households at high risk of becoming financially vulnerable – unable to make ends meet.

This is the realisation one comes to after studying the latest quarterly Momentum-Unisa Consumer Financial Vulnerability Index (CFVI) report.

The research found that the state of consumers’ finances deteriorated in the second quarter of 2022, with the index falling to 48.5 points at the end of June compared with 53.4 points at the end of the first quarter.

The drop to below 50 points indicates that consumer finances have dipped into a very exposed state.

The index is currently just above the very low levels of the middle of 2021 when the country had to deal with the Covid-19 pandemic, continued lockdowns, and the fallout from the initial severe lockdowns. The CFVI fell to below 46 points at the time.

Momentum economist Johan van Tonder says this significant decline can be attributed to steep rises in the prices of fuel and food products, load shedding, increasing interest rates, and low economic growth.

“All these rising costs are coupled with a limited access to tangible resources that consumers could otherwise have used to overcome their financial challenges,” he says, alluding to the perception that households have already used up their savings, while the various measures that assisted households during the pandemic are no longer available.

We’re paying much, much more

The latest inflation report published by Statistics SA has the figures.

The petrol price has increased by nearly 42% and diesel by 54% compared with a year ago, while the price of brown bread increased by nearly 16%, white bread by 12%, a piece of steak by 14%, and cooking oil by a massive 50%.

The sharp increase in interest rates – with banks’ prime lending rate increasing from 7% for most of 2020 to the current 9% – has led to higher instalment payments on everything from cars to homes. Interest rates are expected to increase further, with the higher rates eventually filtering through to related costs, such as rent.

“Every one of the subcomponents of this quarter’s index has deteriorated, including income, expenditure, savings and debt servicing,” says Van Tonder.

The index indicates that people’s capacity to service debt remains 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,” he says.

Momentum and the Bureau of Market Research at Unisa calculate the index every quarter based on a survey of key informants (such as researchers, bankers, insurers, retailers, government, economists and analysts) who deal with consumers daily and/or study consumer finances on a continuous basis.

All four subcomponents of the CFVI deteriorated in the second quarter of 2022. The expenditure index declined, but remained above 50 points. The other three subcomponents (income, saving and debt servicing) indices all decreased to below 50 points.

The vulnerability index describes a reading between 40 and 50 points as financially “very exposed”. A reading above 60 points will signal an individual or household that is very secure.

Defining financial security and vulnerability
Points	Rating	Description
80 – 100	Extremely secure	Cash flow is under control with little treat of becoming financially vulnerable.
60 – 80	Very secure
50 – 60	Mildly exposed	Cash flow affected to such an extent that it creates a high risk of becoming financially vulnerable/insecure.
40 – 50	Very exposed
20 – 40	Very vulnerable	Cash flow affected to such an extent that it creates an actual experience or sense of being financially insecure.
0 – 20	Extremely vulnerable

Source: Momentum-Unisa Consumer Financial Vulnerability Index report Q2, 2022

The authors of the report say an analysis of the insights on the four subindices of the index revealed the main reason for the deterioration in consumers’ financial vulnerability is a decrease in the resources they could access to cope with rising prices and interest rates.

“Higher income vulnerability can be ascribed to [fewer] consumers being able to complement their income with other resources, such as transfers from family and friends, as they also experienced more financial pressures,” the report states.

Read: More South Africans dabble in risky investments to get by

“In terms of expenditure, consumers were more expenditure vulnerable as their expenditure increasingly exceeded their income. Savings vulnerability levels increased mainly because of a strong decline in the savings consumers had available for emergencies.

Varying perceptions

The analysts identified different perceptions of households’ financial state when talking to different respondents.

Retailers, specifically grocery stores, were the most optimistic about consumer finances, while regulators and asset managers had the most pessimistic view.

That retailers were less pessimistic about their clients’ ability to cope supports the fact that consumers will continue to buy goods and services that satisfy basic needs, such as food, clothing and communication – despite facing financial difficulties. However, the figures show that retailers also noticed that consumers are under more strain.

“The CFVI-scores per key informant group reflect the finances of clients they interact with and may indicate some bias. For instance, regulators mostly interact with clients in difficult situations,” say the authors. The report discloses that regulators believe consumers are more stressed than other respondents.

Knock-on effects

Van Tonder says the research also identified side effects of a more financially vulnerable society, including putting great strain on relationships with family, friends and co-workers.

“This is compounded by the fact that this financial vulnerability would consume the thoughts of consumers and thus negatively affect their productivity in the workplace.”

However, the financial vulnerability experienced in the quarter had an overall positive impact on consumer financial behaviour – which Van Tonder says changed mostly for the better in that greater vulnerability and increased pressure on finances tended to make consumers more cautious and behave with more prudence when it comes to their money.

We’re expecting things to worsen before they start improving

The Momentum-Unisa research predicts that things will get worse: steep increases in municipal tariffs will pose a further risk to consumer finances in the current quarter, in addition to current risks such as higher interest rates, high fuel and food prices and load shedding.

All these factors were deemed to be a high risk by more than 90% of key informants.

With regards to the expectations for the economic environment and consumer finances, the majority of respondents expect the situation to worsen:

• The overwhelming majority expect consumer price inflation to increase rapidly;
• Unemployment is expected to increase;
• The South African and global economies are expected to perform worse by close to two-thirds of key informants;
• Some 69% anticipate the state of consumer finances to deteriorate, while nearly 46% expect consumers to feel even less in control of their finances; and
• Some 97% of key informants believe it will take more than another year for consumer finances to recover from the impact of Covid-19 and the resultant lockdowns.

“High levels of consumer financial vulnerability in the short to medium term will in all likelihood persist, given an increasing number of structural imbalances, downside risks, political and social instabilities, increasing poverty and inequality, as well as governance and government administration deficiencies,” says Van Tonder.

“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.”

Listen to Nzinga Qunta’s interview with Benay Sager of DebtBusters about South Africans’ high stress levels regarding debt (or read the transcript here):