Warning to South Africans as finances crumble

The latest Momentum-Unisa Consumer Financial Vulnerability Index (CFVI) showed that the state of consumer finances in South Africa deteriorated in the second quarter of 2022, dipping 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, load shedding, increasing interest rates and low economic growth.

“Every subcomponent of this quarter’s index has deteriorated including income, expenditure, savings, and debt servicing,” said 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,” the economist said.

The research also identified side effects of a more financially vulnerable society, which include 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,” he said.

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 load shedding.

“We have seen record high fuel and food price increases,” said 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,” the economist said.

Annual consumer inflation jumped to 7.4% in June from 6.5% in May, mainly driven by rising transport and food prices, data from StatsSA showed. The June rate is the highest reading since May 2009 (8%) when the economy was facing the headwind of currency depreciation during the global financial crisis, it said.

Debt Rescue noted that while motorists will see a drop in the petrol price for both 93 and 95 octane petrol of R1.32 per litre on Wednesday (3 August), it will make no real difference to the lives of most citizens who have had to absorb massive fuel price hikes over the past year.

Year-on-year data shows an increase of 38% from R18.11 on 4 August 2021 to R25.42 on 3 August 2022.

“Although the government is to be commended for starting the process of introducing a price-cap for 93 octane petrol, the reality is that much more is needed to prevent millions of consumers from sinking into poverty,” said CEO of Debt Rescue, Neil Roets.

“Long, drawn-out plans by the government – with all good intentions – that will probably only be implemented in 2023, will simply be a case of too little too late,” he said.

Roets warns that by far the most pressing issue is food inflation and the resulting misery it brings.

“With almost 20 million people going to bed hungry every night, and of these, 7 million people suffering from chronic hunger, this is not the time to turn a blind eye. The welfare of the very young and the very old is at stake here. Along with the devastation of entire communities, we should be very worried about social instability. The warning signs are there for anyone to see.”

According to the monthly retail report from market-research and global consulting company NielsenIQ, based on sales data acquired from 10,000 Woolworths, Spar, Pick n Pay and Checkers stores countrywide – surging food inflation is forcing SA consumers to cut items such as fresh milk and vienna sausages from their list of essentials.

Consumer inflation’s acceleration to a 13-year high is being clearly reflected in shopping patterns, the market-research firm said in its latest SA retail report, with sales volumes of items such as frozen meat and cooking oil starting to show significant declines as surging prices bite, said Roets.

“The sad reality is that more and more credit-worthy consumers will be purchasing these and other essential foods and household items with their credit and store cards every month, just to get by,” he said.

Tips to improve consumer financial resilience

Although the outlook is more negative this quarter, Momentum provides a few tips on how to shop smarter:

  • 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.

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Warning to South Africans as finances crumble