Political issues expected to affect consumer finances negatively

Johan Van Tonder, Economist for Financial Wellness at Momentum

The overall state of South African consumer finances improved slightly in the third quarter of 2022(Q3 2022). This is according to the latest Momentum-Unisa Consumer Financial Vulnerability Index (CFVI) which indicated that despite improvements, consumers finances remained under pressure.

According to Economist & Researcher at Momentum Metropolitan, Johann van Tonder, increasing food prices, load shedding, high fuel prices and political instability and corruption posed the highest risk to consumer finances in Q3 2022. “In fact, the fastest climbing risk factor, though, is seen to be politicians not focusing on consumer needs. All of this was coupled with limits to resources consumers could access or use to deal with their financial challenges,” says Van Tonder.

The index indicated that income and expenditure indices increased, saving and debt servicing indices implied consumers are very exposed while debt servicing remained an ‘Achilles heel’ for consumers.
“Rising consumer price inflation and interest rates, considerably reduced consumers ability to repay debt and save,” says Van Tonder.

Van Tonder says financial vulnerability continued to negatively impact consumers’ behaviour, particularly on two fronts. The report indicated a further increase in the already high number of consumers whose dire financial situation are affecting relationships with family, friends, and colleagues. “More consumers are focusing so much on their financial problems which causes them to neglect other important issues,” says Van Tonder.

Risk factors are expected to continue in Q4 2022, but in a different order, asserts Van Tonder. “Load shedding is expected to be the highest risk factor, followed by political instability and corruption, and high food and fuel prices. The fastest climbing risk factor, though, is seen to be politicians not focusing on consumer needs.”

In conjunction with political instability and corruption (regarded as second highest risk for Q4 2022), Van Tonder says this indicates that political issues are becoming a growing risk to consumer finances.

Overall, he says there is very little optimism surrounding the economic outlook for Q4 2022. “Most people expect a deterioration in both the global and local economic environments paired with continued increases in inflation and a high unemployment rate,” says Van Tonder.

As consumers prepare to weather the Q4 storm, load shedding is expected to continue interrupting the economy on its journey to success. The report invites consumers to reflect on the following tips to make their households more load shedding friendly:

• Power surges - Unplug all your sensitive electrical appliances and electronic devices to ensure that when power returns, and there is a surge, your appliances are safe or use surge protectors for computers, televisions and fridges.
• Use gas - Gas stoves are becoming a popular choice for consumers who are building a new home or re-doing their kitchen. Alternatively opt for a camping size gas stove to cook food and boil water.
• Batteries instead of flames – Rather opt for battery-operated lights and torches than using candles that could be a fire hazard.
• Keep food safe – Ensure the temperature in the refrigerator is 4°C and keep the refrigerator door closed as it will remain cold enough for up to four hours without power. If the freezer door is kept closed, frozen food will stay frozen for around 48 hours. Consider purchasing long-lasting items, such as unopened canned foods and sterile or UHT drinks that have a long shelf life.
• Go solar – Make use of the South African sun and opt for solar energy. Install a solar geyser, use solar lights and charge your phone with a solar charger.

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.