Consumer Financial Vulnerability Increases

John Vaughan (Financial Advisor) @ Lucid Living

According to the latest Consumer Financial Vulnerability Index (CFVI), consumers felt more vulnerable about their income and savings, which was attributed to higher unemployment and poverty levels that impacted negatively on consumers’ ability to generate income and save money, in the second quarter of the year.
South African consumers felt more vulnerable in the second quarter than they did in the first one – 1.6% more than the first quarter and the CFVI increased from 4.39 points to 4.46.

“This increase is unfortunate, but to be expected when one considers the sharp slowdown in the country’s economic growth from 4.5 percent in the first quarter to 1.3 percent in the second quarter,” said Prof Bernadene de Clercq, of the BMR.

Income vulnerability increased as consumers started feeling the effects of unemployment and the impact of salaries and wages not growing as fast as in previous years.

Unemployment rose by 158,000 people between the first and second quarter of 2011, according to Statistics SA.

Annual salaries grew 9.4 percent between the second quarter of 2010 and the second quarter this year, compared to 14.5 percent in the same period of 2009 to 2010.

Savings vulnerability increased as consumers saved less in the second quarter, according to SA Reserve Bank data.

“Households’ net consumption expenditure exceeded disposable income in Q2 2011, indicating that consumers are still dissaving,” the BMR said.

This meant people spent more and saved less.

Whereas poor people in the UK spend about 90% of their income and the more affluent use about 60% of their income, poor South Africans spend 122% of their income while the rich spend 97% of their income.

The CFVI showed that consumers were struggling to service their debts.

Unisa research director Professor Carel van Aardt said the survey showed the middle class living beyond its means.

South Africans also supplement their income by taking on credit.

De Clercq said 76.4% of those surveyed believed consumers were enhancing their income through more credit facilities, while almost 85% believed consumers were over-indebted.

“They say other people have got a car, I must also have one, other people have a house, I must also have it. In that way, they enter into a lot of debt,” points out Van Aardt. “Consumers often make decisions they believe will benefit them in the short-term, but these often land them deeper into poverty,” he said.

Van Aardt attributed consumers’ poor decision-making on a lack of financial literacy.

“Educational institutions are key. We have a financial literacy skills crisis.”