Consumer finances impacted negatively on all levels during Q2 2021

The state of South African consumers’ personal finances deteriorated during the second quarter of 2021 (Q2 2021) following a gradual improvement since Q2 2020. Higher levels of financial vulnerability in Q2 2021 were caused amongst others by the COVID-19 social relief grant which ended in March 2021, pressures of rising fuel and food prices, high unemployment and limited salary increases. The impact of these and other factors are reflected in the Momentum-Unisa Consumer Financial Vulnerability Index (CFVI) which decreased to 45.9 points from 49.7 points in Q1 2021.

The drivers that led to the lower CFVI score were the significant decline in consumers abilities to save and limited employment opportunities, which were exacerbated by below-inflation salary increases and absence of social relief grants – making it difficult for consumers to live within their means during the past three months.

• The income index weakened from 50.2 points in Q1 2020 to 47.4 points in Q2 2021.
• The expenditure index declined from 52.3 points to 48.4 points over the same period.
• The savings index deteriorated the most, declining by 6.1 points to 42.7 points in Q2 2021.
• The debt servicing index decreased from 47.5 points in Q1 2021, to 44.9 points in Q2 2021.

The decline in the CFVI therefore reflects that the majority of consumers are feeling financially exposed and insecure, meaning that any small adverse event (e.g. pay cuts) can contribute to a large deterioration in the state of their personal finances. When interpreting the CFVI, it is important to keep in mind that a small number of consumers earn the bulk of the income and are responsible for most of the spending, saving and debt servicing in the economy.

 The main reasons behind the changes in the four sub-index scores:

• Income vulnerability increased during Q2 2021. 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 – as a result – negatively influenced consumers’ income 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 for Q2 2021. Compared to Q1 2021, a larger portion of key informants believed consumers’ expenditure tended to exceed their incomes, thereby impacting their ability to remain within budget. The majority of key informants were of the view that consumers generally tend to live beyond their means and not demonstrate self-control when it comes to spending.
• Savings vulnerability also increased in Q2 2021. It seems as if consumers struggled to save in general. This is confirmed by a larger percentage of key informants disagreeing with the statement that consumers’ ability to save improved in Q2 2021. This also includes saving more for retirement. Many key informants also indicated that consumers unfortunately did not have greater access to emergency savings in Q2 2021. 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 debt servicing capabilities in Q2 2021. Low interest rates assisted in limiting debt servicing costs, but given the pressure on income and expenditure, consumers had limited funds to repay outstanding debts. It appears some consumers’ financial circumstances might have continued to call for a cancellation of financial obligations.

The key informants were asked to indicate which consumers they deem to be most financially vulnerable during the past quarter based on their interactions with consumers and their perceptions of consumer financial behaviours. Key informants highlighted that the youth (those below 39 years) tend to be the most financially vulnerable consumers. This was the opinion of more than two thirds (71.3%) of key informants. This corresponds to the economic struggles that this market segment faces, including high unemployment and the pressures brought about due to changes in life stages (such as student loans, getting married or having children).

Some observations made by key informants concerning the financial behaviour of consumers include:

• The psychological toll of the pandemic is greater than one might realise.
• Consumers tend to be very negative about the country and do not feel in control of their lives.
• Consumers in low-income groups tend to rely on government for support and survival and not so much on creating their own sources of income.
• Consumers have changed their buying behaviour as the pandemic accelerated the adoption of digital products and services, such as online grocery shopping.
• The pandemic has undermined the feeling that long-term planning is important, with consumers having a survival mindset and not taking tomorrow into consideration.

The majority of consumers in South Africa are struggling financially, given sluggish job creation and the pressures of prices of goods and services which are rising at a faster rate than incomes. Consumer finances will remain volatile for some time to come, supported by the majority view of key informants that such a recovery could take more than two years following the initial shocks brought about by the Covid-19 pandemic and subsequent lockdown.

As part of Momentum’s Science of Success campaign, the Index is produced in partnership with Unisa. It aims to provide South Africans with information and strategies on how they can accelerate their journey to financial success. The CFVI is compiled from the views of key informants (researchers, bankers, insurers, retailers, government, economists, analysts, etc.) who deal with consumers daily and/or study consumer finances continuously.

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