Consumer Financial Vulnerability Index: Q3 2021
The state of South African consumers’ personal finances recovered to its best level in more than two years during Q3 2021.
The Momentum-Unisa Consumer Financial Vulnerability Index (CFVI) increased to 50.3 points in the third quarter of 2021 (Q3 2021), a level last observed in Q2 2019. This follows a deterioration to 45.9 points in Q2 2021 from 49.7 points in Q1 2021.
The recovery in the CFVI also suggests that the reintroduction of the SRD-grant had a positive impact that outweighed the negative influence of the looting and riots in KwaZulu-Natal and Gauteng from 9 to 18 July 2021. The spill-over effect of the SRD-grant, among others, seems to have had a positive effect on all sub-indices of the CFVI in Q3 2021 as:
• The income index increased to 50.3 points from 47.4 points in Q2 2021.
• The expenditure index improved from 48.4 points in Q2 2021 to 52.4 points.
• The savings index showed the biggest improvement from 42.7 points in Q2 2021 to 50.6 points.
• The debt servicing index increased to 47.8 points from 44.9 points in Q2 2021.
Although the CFVI is now at the same level as in Q2 2019, consumers are generally still in a vulnerable state. In addition, millions of consumers’ financial positions are vastly different than two years ago. Since Q2 2019, nearly 1.4 million workers lost their jobs and incomes. Close to 6 million Social Relief of Distress (SRD) grant payments of R350 per month were made in Q3 2021. This suggests that the recovery in the CFVI was driven more by the reinstatement of the SRD-grant than by job creation.
Reasons behind the changes in the four sub-index scores:
• Consumers’ income vulnerability declined. This can be attributed to millions more consumers gaining from the reinstatement of the SDR-grant and extension of TERS payments compared to those who were negatively affected by the looting and riots. The looting and riots, which stretched from 9 July to 18 July 2021, may according to some reports have contributed to over 100 000 job losses. However, government’s announcement that affected workers may claim from the Temporary Relief Scheme (TERS) would have alleviated some of the financial pain. However, the main reason for the improvement can be attributed to the reinstatement of the R350 per month SRD-grant. Since the first payment on 25 August 2021, more than 5.6 million payments were made to consumers in Q3 2021, improving their income prospects until at least March 2022.
• Debt servicing vulnerability was lower. Low interest rates continued to assist cash-strapped consumers in Q3 2021, whilst new unsecured credit contracted in real terms compared to a year ago.
• Less income vulnerability assisted with lower expenditure vulnerability as more consumers could better afford their expenses. However, rising consumer prices as reflected by especially higher food-, municipal-and fuel price inflation, would have made some essential products less affordable to the majority of consumers in Q3 2021, reducing the positive effect of lower income vulnerability. Spending was also curtailed by COVID-19 level 4 restrictions which was in place for most of Q3 2021.
• Savings vulnerability declined, partly due to less income vulnerability, but also because of COVID-19 level 4 restrictions which prevented more spending. However, it was more the middle-to higher income groups whose savings benefitted from the level 4 restrictions.
Some observations made by key informants concerning the financial behaviour of consumers
• Consumers generally don't plan their finances in advance
• Consumers generally spend more than they earn
• Consumers generally don't use credit responsibly
• Consumers generally are not good at expanding their incomes
• Consumers generally felt more disempowered
• Consumers generally don't exercise self-control when borrowing
• Consumers generally don't exhibit self-control when spending
• Consumers generally are not financially literate
Some observations made by key informants
Key informants (including researchers, bankers, insurers, retailers, government, economists, and analysts) indicated that full-time workers in the public service are deemed to be the least financially vulnerable (65.6% of key informants indicated they are the least financially vulnerable group in terms of employment status). As for the other least financially vulnerable demographic groups, the key informants identified them as consumers earning more than R30 000 per month; being 40 years and older; working in the services sector; mostly males and married couples.
As for consumers’ behaviour toward COVID-19, an increased number of key informants observed that consumers felt more worried about their finances than contracting COVID-19 in Q3 2021. This may be due to the stringent level of COVID-19 restrictions. Since starting to survey this issue in Q2 2020, a pattern seems to have emerged, with results suggesting that consumers became more worried about their finances when COVID-19 restrictions were more stringent.
With regards to the expectations for the economic environment during Q4 2021, 59.1% of key informants expect an increase in the unemployment rate, while 50% predict that there will be a rapid increase in prices, and 40.2% expect that the general economic situation in South Africa will get worse.
Although most key informants expect the financial situation of consumers to recover in Q4 2021, it is noteworthy that this majority is only 37.3%. With 30.1% expecting consumers’ financial situation to remain unchanged and 32.2% expecting it to worsen, the coarsely equal distribution reveals the level of uncertainty among key informants.
The matter gets settled, though, when analysing key informants’ view on how long they expect it to take for consumers’ finances to recover. Nearly 71% expect that it will take more than two years for consumer finances to recover, with the majority expecting it may even take more than three years.
As part of Momentum's Science of Success campaign, the Index is produced in partnership with 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 from the views of key informants (researchers, bankers, insurers, retailers, government, economists, analysts, etc.) who deal with consumers daily and/or study consumer finances continuously.
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