It shouldn’t come as a surprise that the Momentum-Unisa Consumer Financial Vulnerability Index (CFVI) shows that consumers were financially worse off in the second quarter compared with the first three months of this year.
It would have been unusual for consumer finances to have improved during a quarter marked by steep rises in the prices of fuel and food, increasing interest rates, loadshedding, high unemployment and low economic growth.
The CFVI weakened from 53.4 points in the first quarter to 48.5 points in the second, which means consumers were in a “very exposed” state of financial vulnerability.
The index has four sub-indices: expenditure, income, saving and debt-servicing.
According to the report, the main reason for the deterioration in consumers’ financial vulnerability between the two quarters was “a decrease in the resources consumers could access to cope with rising prices and interest rates”.
It went on to state that consumers were low on savings and were less able to turn to family or friends to tide them over.
As the table shows, consumers were most vulnerable when it comes to servicing their debts. The report stated that consumers’ ability to service debt worsened to the extent they had to seek outside assistance to cope with their debt burdens.
Different informants see things differently
The CFVI is not based a sample of the actual finances of consumers but on the responses of 98 “key informants” from “relevant industries” – including banks, insurers, asset managers, retailers, municipalities and consumer researchers – “that are able to gauge consumers’ financial perceptions and positions”.
It’s no surprise, therefore, that perceptions of consumers’ financial situation differ among the key informants:
As can be seen from the graph, retailers, specifically grocery stores, were the most optimistic about consumer finances, while regulators and asset managers had the most pessimistic views. These were similar trends to the first-quarter results.
“The optimism supports the fact that despite facing financial adversity, consumers will continue to buy goods and services that fulfil basic needs, such as food, clothing and communication,” the report said.
“The CFVI scores per key informant group reflect the finances of clients they interact with and may indicate some bias. For instance, regulators mostly interact with clients in difficult situations. Interestingly, insurers and banks’ CFVI scores hover just above or just below the average index score of 50 points.”
Looking at the bigger picture
To contextualise the latest CFVI, it’s worthwhile pulling back and looking at the results since the second quarter of 2009.
As expected, there was a huge deterioration during the lockdown.
However, it is noteworthy that between 2009 and 2022:
- Consumers’ finances never improved beyond “mildly exposed”; and
- The second-quarter reading of “very exposed” is not unusual. The 48.5-point score in the second quarter is better than the scores in periods when consumer finances had not been knocked by a lockdown.
Things aren’t going to get better
The CFVI’s key informants believe that the outlook for consumer finances in the third quarter is bleak. In addition to contending with their current risks to their finances, such as rising fuel and food prices, steep increases in municipal tariffs are expected to affect consumers negatively.
The following were among the views expressed by key informants with regard to the economic environment and consumer finances in the third quarter:
- 86% expect it will take more than 18 months for consumer finances to recover;
- The overwhelming majority expect inflation to increase rapidly;
- 9% expect the unemployment rate to increase;
- Nearly two-thirds expect the South African and global economies perform worse; and
- 1% anticipate the state of consumer finances to deteriorate, while 45.7% expect consumers to feel even less in control of their finances.
“High levels of consumer financial vulnerability in the short to medium term will in all likelihood 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. This will negatively impact the economy, employment and household incomes, which will filter through to adversely affect all aspects of consumer finances,” according to the report.
