Consumer Financial Vulnerability Worsens

John Vaughan (Financial Advisor) @ Lucid Living

More than 96 percent of South Africans still cannot plan their finances and close to 90 percent spend more than they earn.
These findings underpin the deterioration in the consumer financial vulnerability index (CFVI) for the third quarter of last year.

According to the CFVI developed by the Bureau of Market Research (BMR) at Unisa, in collaboration with FinMark Trust, 3.5% more consumers were blacklisted in the third quarter compared with the second quarter of 2010. 8.49 million people remain a credit risk due to being over-indebted or having impaired (“blacklisted”) credit bureau records.

The biggest financial problem consumers identified in the third quarter of 2010 was the increasing number who were not creditworthy due to being over-indebted. Other problems they mentioned were not being credit worthy due to impaired credit bureau records.

The overall index increased from 4.54 to 4.79 between the second and third quarters of 2010. It was the first increase in the overall CFVI since the fourth quarter of 2009.

According to Professor Bernadene de Clercq, the head of Unisa’s personal finance research unit, this reality check is partly due to increased unemployment.

“… South Africans remain financially vulnerable, although available economic data shows continuous improvements in the macro-economy, with the exception of employment levels where job losses are still continuing,” said de Clercq.

Vulnerability of consumers who just entered the job market, between the ages of 18 and 39 increased by 0.9 percentage points and the CFVI shows this is a result of low labour absorption for new market entrants.

“Although our economy is gaining strength significantly, it is not turning the tables for job creation yet,” Van Aardt said.

“We look at the fact that banks are lending money again, but how many people are creditworthy? Half of the population is over-indebted and still doesn’t have job security and with the financial illiteracy level so high, South Africans keep incurring debts.”

There was also an annual improvement in consumer accounts handed over to debt collectors. This may be partly because more consumers have been making arrangements to pay their debts over a longer period.

Expenditure vulnerability improved, but expenditure vulnerability rates are still high for low-income consumers due to a large number of job losses.

Retail expenditure also shows that households are spending more. Consumers are even cancelling policies to cover household expenditures.

Savings vulnerability also increased to 4.93% from 4.19% in the second quarter. When comparing the third quarter of 2010 with the corresponding period in 2009, the survey found consumers’ ability to save had worsened. “In quarter three of 2010, 61% of respondents disagreed with the statement that ‘the ability of consumers to save increased’ compared to 47% of respondents in quarter three of 2009,” it said.

It appears from the Financial Stability Review that savings as a percentage of disposable income of households was negative for the first half of 2010.