Consumer Financial Vulnerability Index Q2 2012

John Vaughan (Financial Advisor @ Lucid Living)

“SA consumers experienced severe strain on their cash flow during the second quarter of this year,” according to the Consumer Financial Vulnerability Index (CFVI).

The index declined sharply from 58.9 points in the first quarter to 48.6 in the second quarter.

All four sub-components of the CFVI lost ground during the second quarter.
— The savings index declined from 58.8 points in the first quarter to 47.5 in the second quarter;
— The expenditure index went from 60.1 points to 53.8;
— The debt servicing index dropped from 56.6 points to 47.8;
— The income index from 57.6 points to 44.8.

The decline meant consumers slipped from “mildly exposed” to risks in cash flow position in the first quarter of the year to “very exposed” in the second quarter.

Bernadene de Clercq said consumer were facing mounting pressure. This could be compared to the stressful conditions of 2009 when they were confronted with multiple risks.

These included job losses, high inflation and stagnating Gross Domestic Product.

Lower income groups and government social grant recipients are the most hard-pressed consumers struggling with debt, say experts.

The CFVI revealed that the majority of South African consumers were feeling the heat of over-indebtedness and their financial cash flow were extremely exposed.

Carel van Aardt, a research director of Unisa’s BMR said most lower income group households were still struggling to keep up with the constant food price increases.

He said another factor which was pushing them deep into the debt-trap was that the majority of this LSM were favouring buying now and paying later, which was impacting heavily on their savings.

“The buy now and pay later method by lower income groups in most cases lead to consumers paying high interest rates, resulting in a high debt ratio. One of the contributing factors to this group is that they don’t take full advantage of low interest rates, instead the more cut in interest rates the more they are getting into debt. When rates started to go up, the more the problems escalate.”

Van Aardt pointed out that lack of education faced by this group was another contributing factor taking into account that the majority were characterised by lower skills and were private employees.

“Income in this group has not increased that much in the past few years and that show there is no more money for consumers to pay their bills. On the other hand, although social grants have been increasing, consumers have to pay more on consumption expenditure with little to save.”