Higher fuel and food prices, rising unemployment and small or no salary increases have made South African consumers financially vulnerable, the latest economic indicators show.
On Momentum and Unisa's Consumer Vulnerability Index for the second quarter of this year, the overall index score dropped from 49.7 to 45.9. This means that consumers' cash flow is under so much pressure that even a small setback, such as a salary cut, can lead to huge setbacks in their personal finances.
The index is compiled from the views and figures of researchers, bankers, insurers, retailers and economists.
The score is interpreted as follows: Between 100 and 60 means consumers' cash flow is under control and there is very little risk of financial vulnerability; between 59.9 and 50 means consumers are slightly exposed to financial uncertainty; while a score below 50 indicates increasing vulnerability.
The index also shows consumers' revenue score fell from 50.2 in the first quarter of this year to 47.4 in the second quarter; spending from 52.3 to 48.4; savings from 48.8 to 42.7; and debt relief from 47.5 to 44.9.
The decline in net income shows that Covid-19 still has a detrimental effect on the number of people employed in the formal sector, as well as the salaries they are paid.Mike Schüssler
As far as consumers' income is concerned, the cancellation of the R350 social grant at the end of March had a detrimental effect on income, says Johann van Tonder, an economist and researcher at Momentum and one of the compilers of the index.
"And when income falls, it has a spillover effect on spending, savings and people's ability to pay off their debts."
Government announced this week that it would reintroduce the R350 grant until March 2022.
Van Tonder says the fact that the index point for savings fell the most - 6.1 points - in all the subcategories shows that consumers can't cut back anywhere else.
"Usually when people's income drops, they cut spending. But even that has been cut so much that they have no choice but to dig into their savings."
The observers agree that people's incomes are vulnerable because the economy is not creating jobs. Revenues will also remain under pressure as long as economic activity is curtailed.
Bankserv's figures show that South Africans' net remuneration in June was 3% lower than in the same period in 2019. Salaries are still not at the levels they were three to four years ago, says Mike Schüssler, chief economist at economists.co.za.
"The decline in net income shows that Covid-19 still has a detrimental effect on the number of people employed in the formal sector, as well as the salaries they are paid."
A survey conducted last month by Remchannel, a research company that evaluates salaries and employment, shows that almost a third of employers will grant smaller salary increases than they initially budgeted for. Remchannel and Old Mutual Corporate announced the findings of their semi-annual salary survey last week.
The pandemic also caused many employers to contribute less to their workers' retirement funds.
"More than a quarter of employers whose retirement funds are administered by Old Mutual Corporate requested some form of financial relief when the lockdowns were at their most severe," said Malusi Ndlovu, director of large companies at Old Mutual.
However, 90% of those have started making full retirement fund contributions again.
The Momentum-Unisa index shows consumers had limited money for repaying their debts. The financial affairs of some have deteriorated to such an extent that they have asked to be relieved of their debt obligations.
Experian's latest report on defaults shows that consumer repayments weakened across almost all categories in the first quarter of this year - with the exception of home loans and store cards. Defaults on credit cards and car payments have increased sharply.
The income groups whose defaults increased the most were among the richest South Africans, the so-called luxury living group. This group's total defaults for the first quarter of the year were more than R5 billion and their total outstanding debt was almost R614 billion.
Experian attributes the increase in rich individuals' defaults to their high exposure (33% of the market) to vehicle debt and credit cards.
In the first quarter of the year, a total of 23.7 million South Africans had credit cards, personal loans, car loans, home loans and shopping cards. The total outstanding debt was R1.9 trillion.
Van Tonder told City Press that, in depressed economic conditions, many consumers make rigid and short-sighted decisions, such as making debt against their own better judgement.
"People make decisions to survive in the immediate future, even if they know it will come back to bite them later," said Van Tonder.
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