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Consumer finances crumble under the pressures of rising prices and interest rates

02 August 2022 Momentum
Johan Van Tonder, Economist for Financial Wellness at Momentum

Johan Van Tonder, Economist for Financial Wellness at Momentum

The state of consumer finances in South Africa deteriorated in the second quarter of 2022 (Q2 2022). This is according to the latest Momentum-Unisa Consumer Financial Vulnerability Index (CFVI), which indicated consumer finances have dipped back into a very exposed state.

According to Johan Van Tonder, Economist for Financial Wellness at Momentum, this prominent decline can be attributed to steep rises in the prices of fuel and food products, loadshedding, increasing interest rates and low economic growth. All these rising costs are then coupled with a limited access to tangible resources that consumers could otherwise have used to overcome their financial challenges.

“Every subcomponent of this quarter’s index has deteriorated including income, expenditure, savings, and debt servicing,” says Van Tonder.
The Q2 2022 index indicates the country’s debt servicing capabilities remain the greatest constraint on consumers. “In fact, it was found that the ability for consumers to service debt worsened to the extent they had to seek outside assistance to cope with their debt burdens,” he/she adds.

The research also identified side effects of a more financially vulnerable society, which includes great strain put on relationships with family, friends, and co-workers. This is compounded by the fact that this financial vulnerability would consume the thoughts of consumers and thus negatively affect their productivity in the workplace.

However, financial vulnerability experienced in this quarter saw an overall positive impact on consumer financial behaviour. “It changed mostly for the better in reaction to the higher financial vulnerability experienced in Q2. It makes sense as increased pressure tends to make consumers more cautious and behave with more prudence when it comes to their money,” says Van Tonder.

In the Q2 2022 CFVI report, several risk factors to consumer finances were identified. Steep increases in municipal tariffs will pose a further risk to consumer finances in Q3 2022 in addition to current risks such as higher interest rates, fuel- and food prices and loadshedding.

“We have seen record high fuel and food price increases,” says Van Tonder. “Add to this a sudden rise in interest rates and it is no surprise that our consumer finances will remain vulnerable going into the third quarter of the year.”

The latest CFVI indicates that High levels of consumer financial vulnerability in the short- to medium-term will likely persist, given an increasing number of structural imbalances, downside risks, political and social instabilities, increasing poverty and inequality, as well as governance and government administration deficiencies.

“The future of our economy is not a positive one, and neither is employment or household income. This is going to cascade down in an all-encompassing way when it comes to consumer finances,” adds Van Tonder.

Tips to improve consumer financial resilience
Although the outlook is more negative this quarter, Van Tonder says ways in which consumers can respond positively to this situation.

With the unexpected changes in food costs, it can be difficult to prepare healthy meals without going over the budget. The report provides a few tips on shopping smarter giving the increase in food prices. A few of those mentioned in the report are:

• Prepare a grocery shopping list beforehand and stick to it. Ensure that you limit the time in the store and only purchase the necessities.
• Shop around for the best prices on the items that you need to purchase, considering the weekly store leaflets, newspaper advertisements and visiting the stores’ websites or applications.
• Get to know the food prices. Write down the regular prices of foods you buy often. This will help you figure out which stores have the best prices and if you are getting a good deal on sale items.
• Always check the “use by dates” that are on the food items to reduce early spoilage and wasted money.
• Use a basket instead of a cart as you will have less space and it will force you to limit your purchases to necessities.

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.

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