Load-shedding, political instability and higher food prices shatter consumer finances

The Momentum-Unisa Consumer Financial Vulnerability Index (CFVI) decreased from 49.7 points in Q3 2022 to 47.0 points in Q4 2022, the lowest level in 18 months. All four subcomponents of the CFVI – income, expenditure, saving and debt servicing – declined to below 50 points in Q4 2022, as consumer spending exceeded income on a more regular basis, indicating that consumers are very exposed in terms of the Index scoring. The average CFVI-score for 2022 was 49.6 points, a bit higher compared to 49.1 points in 2021. However, whereas the CFVI started weak and gradually improved in 2021, it started stronger in 2022 and weakened as the year progressed.

Higher consumer financial vulnerability emanated from “more permanency” in consumers’ ability to afford expenses in Q4 2022 compared to Q3 2022. There was a sharp increase in the rate at which consumer expenditure exceeded their income, contributing to a domino effect, negatively affecting saving and debt servicing abilities.

Load-shedding remains the factor posing the greatest risk to consumer finances in South Africa according to the key informants participating in the study. Political instability and corruption gradually increased as a high-risk factor affecting consumer finances during 2022 and by Q4 2022 it overtook other high-risk factors such as rising food and fuel prices and increasing interest rates. Key informants expect this trend to continue in Q1 2023.

Key informants also identified the behavioural side effects of a more financially vulnerable society. In Q4 2022 consumers felt more unhappy and less hopeful compared to Q3 2022, and consequently they reverted to more “therapeutic” behaviour in the form of making more unnecessary and impulsive purchases – to make them feel good (i.e. retail therapy).

Key informants are not very optimistic about the economic outlook for Q1 2023.  Continued high inflation, higher unemployment, worsening consumer finances and weakening global and domestic economic growth is expected in Q1 2023.

Tips to improve consumer financial resilience

Managing your household’s day-to-day schedules may be difficult, but what once were mundane tasks such preparing family meals or getting ready for work have become more challenging with the continuous struggle of load-shedding. There is a continuous need to adjust household budgets and plans to adapt to life without electricity, even for short periods. The report provides a few survival tips for when times get dark.

• Know and keep up to date with the changing stages of load-shedding in your area. This can assist in planning your journeys to and from work so that you can avoid areas that will have traffic lights out or planning to leave earlier to avoid the worst of traffic.
• Plan your meals around the load-shedding schedules or consider purchasing a camp gas stove to still be able to put food on the table when the power is out. Prepare larger meals to have leftovers that can easily be heated up instead of being rushed for time to prepare a new meal before load-shedding starts.
• Use a thermos flask to keep hot water ready for warm refreshments and use frozen water bottles to keep the contents of your fridge cool, especially on hot days.
• Have backup batteries for gates, security systems, garage doors and alarms so that your security is not compromised during load-shedding.
• Unplug all your sensitive electrical appliances and electronic devices to ensure that when power returns, and there is a surge, your appliances are safe and will not lead to unnecessary replacement expenses or short-term insurance claims. Use surge protectors for computers, televisions and fridges.
• Use candles and lanterns as alternative lighting sources during night-time power outages as they are relatively inexpensive. Take advantage of natural light during the day to reduce your dependency on artificial lighting, by opening windows and using mirrors to reflect light.
• Replace all the lightbulbs in your home with emergency rechargeable globes that could provide up to two hours of light.
• If you can afford it, buy a generator or UPS to give your household emergency power when you need it most. Solar panel charging stations can also assist in charging many devices with a sufficient output to even power a router.

As part of Momentum’s Science of Success campaign, the CFVI is produced in partnership with the Bureau of Market Research of 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 quarterly from the views of key informants (researchers, bankers, insurers, retailers, government, economists, analysts, etc.) who deal with consumers daily and/or study consumer finances on a continuous basis.

Please click HERE to download the full report.