Consumers’ financial security takes a turn for the worse
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This week's column was to have covered the annual Old Mutual Savings and Investment Monitor, but Old Mutual had to move the presentation on this year's research to the first week of August. So I’ll be covering that next week.
This week, let’s look at another measure of how South Africans are coping financially: the quarterly Momentum-Unisa Consumer Vulnerability Index.
The index and quarterly report form part of Momentum's Science of Success campaign and are produced in partnership with Unisa. The compilers of the 2nd quarter 2021 index were Itumeleng Olien and Johann van Tonder from Momentum, and Jacolize Meiring and Professor Carel van Aardt from Unisa’s Bureau of Market Research. Their research incorporated the views of 96 key informants – including researchers, bankers, insurers, retailers, government departments, economists, and financial analysts – who deal with consumers daily or specialise in consumer finance.
The index comprises four sub-components:
1. Income vulnerability: how secure a household’s income is, based on security of employment.
2. Expenditure vulnerability: the extent to which a household’s expenses may exceed its income.
3. Savings vulnerability: the extent to which a household is able to save.
4. Debt servicing capability: the extent to which a household takes on debt and is able to service that debt.
Scores range from 0 to 100, with 0 - 19.9 being “extremely vulnerable”, 20 - 39.9 being “very vulnerable”, 40 - 49.9 being “very exposed”, 50 - 59.9 being “mildly exposed”, and 60 and over being “secure” and “extremely secure”.
For the second quarter of this year, the overall score was 45.9, a drop from 49.7 in the first quarter.
The report notes: “The state of South African consumers’ personal finances deteriorated during the second quarter of 2021 following a gradual improvement since the second quarter of 2020 (when the index reached an all-time low of 35.4).”
All the sub-component scores were down, and all were in the “very exposed” bracket. The report looks at each of these in turn:
- Income vulnerability increased. “The main constraint to consumer incomes is the inability of the economy to create jobs for a large portion of the population. This made obtaining or retaining employment extremely difficult, which negatively influenced consumers’ earning prospects. In addition, the Covid-19 social relief grant of R350 per month came to an end in March 2021.”
- Higher levels of expenditure vulnerability. “A larger number of key informants believed consumers’ expenditure was exceeding their income. The majority of informants were of the view that consumers generally tend to live beyond their means and do not demonstrate self-control when it comes to spending.”
- Savings vulnerability also increased. “A larger percentage of key informants disagreed with the statement that consumers’ ability to save had improved during quarter. This includes saving for retirement. Many informants also indicated that consumers did not have greater access to emergency savings. Many consumers have been forced to sacrifice saving in order to cover expenditure and service their existing debts.”
- Consumers were more vulnerable in terms of servicing debt. “Low interest rates assisted in limiting debt servicing costs, but given the pressure on income and expenditure, consumers had limited funds to repay debts.”
Worryingly, the report suggested that the youth (consumers below 39 years) are the most financially vulnerable sector of the population. “This corresponds to the economic struggles that this market segment faces, including high unemployment and the pressures brought about due to changes in life (such as getting married and having children),” the report says.
An important and equally worrying observation was that “the pandemic has undermined the feeling that long-term planning is important, with consumers having a survival mindset and not taking tomorrow into consideration”.
Most informants were of the view that consumer finances will remain volatile for some time to come, and the recovery from the pandemic and lockdowns could take more than two years.
In light of the worsening circumstances of so many South Africans, as indicated by the report, the government’s decision this week to reintroduce the social relief grant was the right one, in my view.