Consumer Financial Vulnerability Index QUARTER 2, 2016 RESULTS

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1 Consumer Financial Vulnerability Index QUARTER 2, 2016 RESULTS

2 CFVI Q RESULTS BAD NEWS SNIPPETS INTENSIFY CONSUMER FINANCIAL VULNERABILITY The MMI Unisa Consumer Financial Vulnerability Index shows that the financial vulnerability of consumers increased during the second quarter compared to the first quarter of In the first quarter of 2012 many economists started to believe that South Africa had finally shaken off the hangover of the recession, but the index shows that consumer financial vulnerability has increased steadily since then by a total of 14 percent. The index was at its peak at 58.9 points in Q and now weighs in at a worrying 50.7 points in Q This score implies that consumers remain mildly exposed regarding their finances, but once again on the brink of the very exposed category. During Q consumers once again felt most vulnerable with respect to their debt servicing capabilities, recording a lower score of 48.2 points compared to the previous quarter s 49.9 points. This finding is supported by the latest NCR data indicating that about 40 percent of credit active consumers have impaired credit records. The aspect with the second lowest financial vulnerability index score was consumer savings. Consumers often indicate that they cannot save because they earn too little or won't save because 'government will provide'. Both these aspects were widely voiced by prospective voters before the recent municipal elections. When asked what may be the possible reasons for consumer financial vulnerability levels during the Q2 2016, respondents said that the main reason remains the same consumers are spending more than they earn. If consumers spend more than they earn, they need to acquire the funds to close the gap either by taking up debt or by dipping into their savings. It is therefore understandable that both the debt servicing and savings components of the index now fall into the very exposed category of the index measurement scale. To add to the worrisome news, expenditure vulnerability also increased marginally during the Q to Q period. During this quarter, above average CPI increases were experienced in the prices of basic foodstuffs such as processed foods, fish, milk, eggs, cheese, sugar and hot beverages. Such high increases should be contextualized further by pointing out that during the year leading up to the end of Q fairly steep price increases were experienced in the prices of a broad range of necessities, i.e. food (11.9 percent), water and other services (9.9 percent) and electricity and other fuels (11.2 percent). Fuel prices increased by a cumulative R1.50 per litre during Q2 2016, adding to consumers budgetary pressures.

3 Income vulnerability levels declined somewhat from Q to Q2 2016, with the score increasing to This improvement can to some extent be explained by a slight decline in unemployment during this period. Furthermore, economic forecasts estimate that the economy may have experienced an improvement in performance in Q2 2106, especially when compared to the unsettling economic contraction of 0.6 percent in Q Except for the macroeconomic and microeconomic aspects mentioned above there are a large number of noneconomic factors that may have negatively impacted the financial security of consumers. These include, but are not limited to: Consumers generally feel disempowered to improve their own livelihoods. A very large percentage of consumers feel that government should provide. When government service delivery falters as is currently the case in many communities, consumers may feel more vulnerable. Consumers' perceptions of what is sufficient to live a decent life has changed dramatically as more and more lower income people acquire high-end and branded goods making such goods no longer nice to haves but rather necessities. If consumers are not able to acquire such products due to limited income and existing high debt levels, this could lead to higher levels of financial vulnerability. Consumers are bombarded by bad news in the media with respect to economic, political and social aspects, intensifying consumers feelings of financial vulnerability. In addition to the contributing factors discussed above, personal finance issues contribute strongly to high financial vulnerability among consumers. Poor financial planning, incurring too much debt (or the wrong sort of debt) and consumers spending more than they earn continue to be key drivers of the high levels of consumer financial vulnerability measured during Q Survey respondents also highlighted some demographic and socioeconomic predictors that contributed to consumer financial vulnerability during Q The groups seen as most vulnerable include consumers that earn low incomes, consumers aged between 18 and 39 (who are most probably struggling to obtain employment), consumers who are unemployed and consumers who are single, widowed or separated/divorced. Respondents also emphasised that the possible solution for consumer financial vulnerability is not primarily by fixing problems in the macro-economy, but by addressing personal finance issues magnified by low levels of consumer financial education, consumers accessing debt to service existing debts and consumers being unaware of the implications of having a bad credit record. Debt providers and other financial institutions, employers and media all have meaningful roles to play in turning the tide of consumer financial vulnerability.

4 SCORES OF THE CFVI AND ITS SUB-INDICES Date Savings Expenditure Debt servicing Income Overall CFVI Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q MEASUREMENT SCALE OF CONSUMER FINANCIAL VULNERABILITY INDEX ABOUT THE INDEX The term Consumer Financial Vulnerability implies that consumers experience a sense of financial insecurity or an inability to cope financially. In essence, the CFVI is an index that identifies the specific financial subcomponent(s) that consumers on average feel are causing stress to their cash flow positions. Therefore, it provides a window into the psyche of consumers and how vulnerable they are feeling with regards to their income, expenditure, savings and debt servicing capabilities. Insights into consumers financial positions are vital to determine the extent to which economic growth and government programmes translate into improved financial stability of consumers. As a quarterly indicator, the CFVI fills an important information gap in South African data on consumer finances as viewed by consumers in the sense that it regularly provides updates as to the state of consumers financial vulnerability. The results of this release of the CFVI stem from research conducted by Unisa on behalf of MMI. The results of this release of the CFVI are based on a selection of approximately 100 key informants from relevant industries (including credit industry institutions, retailers providing credit and municipalities) that are able to gauge consumers financial perceptions.

5 COMPILED BY: Prof Carel van Aardt, Bureau of Market Research, Unisa Mrs Jacolize Meiring, Department of Taxation, Unisa Prof Bernadene de Clercq, Department of Taxation, Unisa