South African consumers’ finances have been under severe pressure for at least two years, and this year is expected to be no different. This is according to the latest Momentum/Unisa Consumer Financial Vulnerability Index for the first quarter of this year, which suggests that “extraordinary measures will be needed for a sustainable recovery”.
It also appears that consumers are not adjusting their spending downwards and trying to live within their means, which typically translates into increased hardship in the future.
The index was based on input from 112 key sources in relevant industries (including credit providers and credit bureaus, retailers providing credit and municipalities) that are in a position to gauge consumers’ financial situations.
Ronelle Kind, the general manager of member engagement solutions at Momentum Corporate, believes that the longer consumers’ personal finances remain under pressure, the harder it will be to recover.
The results indicate a slight improvement in the overall index since the previous quarter (fourth quarter 2018), from 49.9 points to 51.2 points, but the accompanying report says this was mainly because of seasonal and psychological factors.
The year-on-year change - which mostly removes the effects of these factors - revealed a deterioration in conditions for consumers. In this respect, the index dropped from 52.6 points to 51.2 points.
Anything below 50 points represents highly to severely exposed/vulnerable to financial hardship, while a score of just over 50 represents mildly exposed/vulnerable.
The four subcomponents of the index (focusing on income, expenditure, savings and debt) showed the following results:
* Income vulnerability index: A sharp year-on-year decline, from 54.9 points in the first quarter of 2018 to 50.9 points in the first quarter of 2019, indicated a strong increase in income vulnerability. It also declined quarter-on-quarter, revealing the severity of the vulnerability. “This deterioration was expected, though, given repetitive bracket creep-driven increases in income taxes, [and the] delayed impact of higher interest rates in the fourth quarter of 2018 (both decreasing disposable income), while companies continued to retrench workers,” the report says.
* Expenditure vulnerability index: This sub-index declined year-on-year, from 54 points to 50.8 points. A slight decline also occurred quarter-on-quarter. “With income under pressure and prices increasing (such as the sharp increases in fuel prices), consumers struggled to maintain their real expenditure patterns,” the report says.
* Savings vulnerability index: The savings sub-index normally increases between the fourth quarter and the first quarter of the following year, and this time was no different. It increased from 48 points to 52.9 points. It also increased year-on-year, up from 51.2 points. This can be attributed to “new year optimism”, the report says.
* Debt vulnerability index: A marginal decline occurred from 50.5 points in the first quarter of 2018 to 50.4 points in the first quarter of 2019, confirming consumers’ long-term struggle to afford their debts. The increase in interest rates in the fourth quarter of 2018 contributed to this decline.
The report also details perceptions held by the 112 industry respondents. These respondents, who deal with consumers daily, noted the following from their interaction with consumers:
* 70.9% indicated that consumers were not living within their means;
* 62.7% indicated that consumers did not show self-control when it comes to spending;
* 51.8% indicated that consumers did not exercise self-control when taking on more debt;
* 49.1% indicated that consumers were irresponsible in their use of credit; and
* 47.7% stated that consumers struggle to adapt to changing financial conditions.
When the respondents were asked about economic conditions in 2019, 47.7% indicated that they would get worse, while 38.7% believed that they would improve.