Here’s how much more financially vulnerable South Africans are compared to the start of 2018

Momentum and Unisa have released their Consumer Financial Vulnerability Index (CVFI) results for Q2 2018.

The term ‘Consumer Financial Vulnerability’ implies that consumers experience a sense of financial insecurity or an inability to cope financially.

As such, the results are based on a selection of 112 key informants from relevant industries (including credit industry institutions, retailers providing credit and municipalities) that are in a position to gauge consumers’ financial perceptions.

The previous index showed that consumers were experiencing lower levels of consumer financial vulnerability during Q1 2018 compared to Q4 2017.

This improvement in the financial situations of consumers was ascribed to a ‘new dawn’ brought about by Cyril Ramaphosa being inaugurated as president, the researchers said.

“The expectation of millions of South Africans at that stage was that the political ‘new dawn’ would quickly translate into an economic ‘new dawn’ characterised by higher gross domestic product (GDP) growth rates, faster job creation, higher investor and business confidence translating into higher economic activity, and lower levels of consumer vulnerability.”

However, this ‘Ramaphoria’ did not last long and was replaced by ‘Ramageddon’.

This pessimism is evident from the Q2 2018 CVFI results, which show a deterioration in the income, expenditure, debt, savings, and overall vulnerability scores from Q1 to Q2 2018.

The deterioration in the different CVFI sub-indices and main index are as follows:

• Income vulnerability: down 3.86 percentage points.
• Expenditure vulnerability: down 5.46 percentage points.
• Savings vulnerability: down 2.35 percentage points.
• Debt vulnerability: down 2.90 percentage points.
• Overall financial vulnerability: down 3.50 percentage points.

Why are consumers vulnerable?

The key informants contacted for the purpose of the Q1 2018 CFVI survey indicated various reasons why consumers were vulnerable during Q2 2018.

The reasons include:

• High levels of unemployment and retrenchments;
• An increase in Value-added taxes (VAT);
• Low levels of education among the South African population;
• South African consumers generally do not save;
• High fuel prices;
• Increases in living costs;
• Consumers generally live beyond their means and take up too much debt;
• A large percentage of South Africans are poor;
• Consumers are buying a lot of stuff they do not really need;
• The sluggish economic environment puts too much pressure on household finances;
• Increasing the cost of essential consumption items such as transport, electricity and food;
• A very volatile economic environment;
• A large percentage of credit-active consumers have adverse credit records;
• Households generally do not conduct financial planning and budgeting;
• High medical costs; and
• Income not increasing while price inflation is high.

When it comes to consumers in general, the key informants believe that a mixture of low financial literacy and capability levels as well as bad consumer financial behaviour are the underlying reasons for consumers being financially vulnerable, namely:

• 50% of key informants believe that consumers are generally not financially literate.
• 65% believe that consumers do not plan their finances.
• 66% opine that consumers are not living within their means.
• 64% believe that consumers do not demonstrate self-control when it comes to spending and taking on new debt.
• 68% believe that consumers generally do not consider the risks when taking on more credit.
• 74% opine that consumers are not good at expanding their incomes.

When asked whether they believe that economic conditions will worsen over the period Q2 2018 to the end of Q1 2019, just under half indicated that it will become worse.

Of even greater concern is the fact that about 83% of respondents believe that unemployment will increase further.

Read: Higher prices, lower profits and job losses – what the global trade war means for South Africa