Limited savings and over indebtedness hinder stronger consumer recovery in Q4 2021

Consumers became more financially vulnerable in Q4 2021 in terms of their ability to save and their ability to service their existing debts remained a concern. Fortunately, income improved substantially which neutralised the increase in their savings vulnerability.

The overall Momentum-Unisa Consumer Financial Vulnerability Index improved to 50.5 points in Q4 2021 (from 50.3 points in Q3 2021), leaving consumers less financially vulnerable compared to the previous quarter.

Highlights from the sub-indices of the CFVI in Q4 2021 are:

• The income index increased to 53.7 points from 50.3 points in Q3 2021.
• The expenditure index improved slightly from 52.4 points in Q3 2021 to 52.7 points.
• The savings index deteriorated significantly from 50.6 points in Q3 2021 to 46.9 points.
• The debt servicing index increased to 48.8 points from 47.8 points in Q3 2021.

The consumer finance landscape is vastly different compared to 2019, before the onset of COVID-19. For instance, in 2019 about 16.4 million consumers earned their income from employment, about 1.7 million more than in 2021. Subsequently, approximately 9.5 million people received a Social Relief of Distress Grant (SDR) of R350 per month, which had not been implemented in 2019. With more people receiving an income compared to 2019, overall income and expenditure vulnerability decreased in 2021 to marginally better than the 2019 level. Overall CFVI was still weaker compared to 2019, mainly due to worse savings and debt servicing positions. In annual terms, consumers were still in financially exposed in 2021 (average index value of 49.1 points), but the state of their finances improved compared to 2020 (average index value of 43.4 points).

Reasons behind the changes in the four sub-index scores

• Consumers were less vulnerable in terms of incomes during Q4 2021. This can be attributed to many employees receiving year-end bonuses, the continuation of the SRD-grant and of higher salaries of civil servants, which collectively contributed to more consumers earning an income.
• Debt servicing vulnerability was lower in Q4 2021. Notwithstanding the improvement, consumers’ debt servicing remained vulnerable. An increase of 25 basis points in the repo rate (in November 2021) made debt servicing less affordable.
• Less income vulnerability assisted with lower expenditure vulnerability as more consumers could better afford their expenses. Nevertheless, consumer price inflation increased from 5% at the end of Q3 2021 to 5.9% at the end of Q4 2021, making it difficult for consumers to afford their expenses.
• Consumers were more vulnerable in terms of savings abilities. As job losses continued, many consumers had to forego contributions to employee benefits such as saving for retirement. At the same time others used some of their savings for purchases.

The recovery in the CFVI in the last half of 2021 can largely be attributed to an improvement in the income streams of many consumers (ranging from salary increases paid to civil servants; to the re-introduction of the SRD-grants following the looting and riots in July 2021). However, in multiple instances millions of consumers could not keep their savings going due to a loss of income, while others had to use some of their savings as a means of income.

Expectations for Q1 2022

• Key informants expect some notable changes in the economic environment in Q1 2022. The majority foresees the global economy to improve further, but for the South African economic situation to worsen, consumer price inflation to increase and an increase in the unemployment rate.
• Key informants are uncertain about the prospects for consumer finances in Q1 2022, as they were almost equally divided in terms of an improving, unchanged, or worsening situation. A third of key informants expect an improvement, 34.3% expect consumers’ financial positions to remain unchanged and 30.3% expect a deterioration over the next three months.
• Almost 70% of key informants estimate that it will take longer than two years for consumer finances to recover from the impact of COVID-19 and the lockdowns. The road to financial recovery seems to continue to be a long and hard one for South African consumers.

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About the index

As part of Momentum’s Science of Success campaign, the Index is one of the reports produced in the partnership between Momentum and Unisa that 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.