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SA consumer finances under severe pressure

11 July 2019 Myra Knoesen

According to the results of the latest Momentum/Unisa Consumer Financial Vulnerability Index (CFVI) (Q1 2019), for the past two years, South African consumers’ finances have been under severe pressure.

The results from the report suggest that under these circumstances the road to recovery is difficult, sometimes requiring some extraordinary measures, or even miracles, for sustainable improvement.

Consumer behavior

Seventy percent of key informants who participated in the survey believe that consumers are not living within their means, while 62.7% of them believe that consumers do not show self-control when it comes to spending.

Fifty five percent concluded that consumers do not plan their finances in advance, 51.8% stated that consumers do not exercise self-control when taking on more debt, 50.0% indicated that consumers are not good at expanding their incomes, 49.1% stated that consumers are not suitably capable to manage their own finances, 49.1% opined that consumers are irresponsible in their use of credit, 47.7% stated that consumers struggle adapting to changing financial conditions and 39.6% indicated that consumers are generally not financially literate.

The key informants also had very specific ideas as to who were the most financially vulnerable consumers during Q1 2019; 43.2% believed that consumers earning less than R50 000 per annum are the most financially vulnerable consumers, while 24.3% considered the R50 000 to R100 000 income group to be the most financially vulnerable. However, 20.7% deemed income earners in the R100 000 to R300 000 per year income group to be the most financially vulnerable.

Curiously, 73.3% stated that the employed are the most financially vulnerable group – probably as they stand more to lose than the unemployed when losing their jobs. Some 16.2% thought the unemployed to be the most financially vulnerable group, 62.1% judged non-partnered consumers (i.e. singles, the divorced and the widowed) to be the most financially vulnerable in terms of marital status.

2019 outlook

When key informants were asked whether they believe that economic conditions would worsen during the four quarters of 2019, 47.7% indicated that it will get worse, while 38.7% believed that it will improve. As for the financial position of consumers during 2019, 41.6% expects that it will deteriorate further, while 35.1% believe it will improve.

Ronelle Kind, General Manager of Member Engagement Solutions at Momentum Corporate, believes that the longer consumers’ personal finances remain under pressure, the harder it will be to recover.

“An increase in financial vulnerability means bad news for all industries. Over the past year consumers reorganized their budgets and spending due to the increase in the income tax burden, price increases in essential products and services, as well as interest rate increases. They have attempted to hold on to financial products as long as possible (deposits, insurance policies, etc.). However, as was indicated by the deteriorating CFVI, the growth in deposits and retirement annuities slowed and continues to slow. As for compulsory savings via employer schemes, increasing unemployment means slower growth can be expected there as well,” said Kind. 

“For the financial services industry, this means a potential decline in asset holding will be unavoidable. As consumers’ budgets become increasingly under pressure, they are more likely to cancel their insurance. For financial service providers it will mean a decline in retention and growth. Financial advisers’ income is also directly linked to consumers’ ability to afford savings and insurance benefits and will therefore take strain,” added Kind. 

“Following the recent increase in the income tax burden (no compensation for bracket creep) and additional electricity price increases, as well as higher fuel prices (which will only reflect in Q2 CFVI), it is difficult to see things improving significantly – unless salary increases outpace these cost increases. Consumers’ cash flow will remain under pressure for as long as their income and expenditure experiences stress,” continued Kind. 

Financial advisers play a key role

Progressive financial service providers, Kind said, should offer their clients value-added benefits and services in addition to their core product offering to help them improve their financial wellness on both the employer and employee level.  

“When value-added benefits and services are designed to improve employees’ physical and financial wellness, employers also benefit from improved productivity. This leads to a reduction in claims costs which drives sustainable pricing, especially on risk solutions,” said Kind. 

“Financial advisers play a key role in creating greater awareness of the value these benefits and services generate and also encouraging active participation. The results of the CFVI show that South Africans feel constantly vulnerable as they struggle to meet their day-to-day expenses. Low financial literacy levels exacerbate the situation. Value-added benefits that help customers to ‘stretch their Rands’ can help alleviate some of this pressure, while services that improve financial literacy can drive smarter financial choices,” concluded Kind. 

Editor’s Thoughts:
When key informants were asked whether they believe that economic conditions would worsen during the four quarters of 2019, most indicated that it will get worse, while some believed that it will improve. The recent increase in the income tax burden and additional electricity price increases, as well as higher fuel prices make an improvement in conditions questionable. Do you believe the financial position of consumers in 2019, going into 2020, will result in a decline in asset holding, insurance cancellation and a decline in retention and growth? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts myra@fanews.co.za

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