Consumer financial vulnerability improves slightly

The overall CFVI declined to 5.17 in the fourth quarter, from 5.48 in the third quarter and 6.17 in the second quarter of 2009.

The CFVI was developed by the Bureau of Market Research (BMR) in collaboration with FinMark Trust and this is the second quarterly update. The overall CFVI and sub-indices are based on a 10 point scale where 0 indicates total financial security and 10 indicates total financial vulnerability.

The results indicate that consumer financial vulnerability improved from the third to fourth quarter of 2009 as the economy started to pick up momentum, job losses decreased, and as consumers adapted their lifestyles downwards, said FinMark Trust and BMR.

However, no significant decline in vulnerability is expected as the underlying causes remain mainly unaddressed. These include high levels of unemployment and poverty, low skills levels, high levels of indebtedness and defaults on repayments, ineffective service delivery, and the impact of HIV and AIDS.

Looking at the different components of financial vulnerability, the scores show that savings vulnerability increased from the second quarter to the third quarter but declined from the third to the fourth quarter.

This could be explained by the fact that consumers hard hit by the recession adapted their lifestyles downwards and became better able to cope with existing savings. Furthermore, consumers also entered into fewer credit agreements enabling them to save more.

Expenditure vulnerability showed a continuing decline from the second quarter to the fourth quarter of 2009 driven by lower interest rates resulting from lower Reserve Bank repurchase rates.

Both debt servicing vulnerability and income vulnerability rates increased from the second to the third quarter of 2009 but declined from the third to the fourth quarter. While lower income vulnerability could be attributed to fewer jobs being lost during the third quarter of 2009, lower levels of debt servicing vulnerability could be because of both lower interest rates and lower credit-taking rates among consumers.

Although there is a slight improvement in levels of consumer financial vulnerability, it is clear from the responses of key informants that South Africans are not yet out of the woods.

Some 70% of key informants said that the income situation of South Africans did not improve during 2009 and 65% said that the ability of consumers to service their debt did not improve. In addition, 60% indicated that consumers' ability to make ends meet did not improve during 2009. Given that nearly half the population are poor, this is serious and 61% of key informants said that the ability of consumers to save did not improve.

A total of 91% of key informants agreed that an increasing number of consumers cannot keep up with payment on financial obligations, 85% indicated that a growing number of consumers are in arrears on their accounts for three months or more and 96% said that an increasing number of consumers are making arrangements to pay off their debts over a longer period of time.

Key informants were asked to indicate the main reasons for the bad financial situation of consumers. The major reasons found were firstly, overindebtedness, secondly, consumers spending more than they earn, thirdly, bad financial planning, fourthly, job losses and, fifthly, not having sufficient savings to draw on.

Finally, key informants were also questioned about who they believed are the most financially vulnerable. The results indicate that the most vulnerable consumers are those with an income of less than 30,000 rand a year as well as consumers who are 18- to 39-years of age.

Overall, the results of the three CFV studies conducted during 2009 indicate that the recession gave rise to increasing levels of vulnerability from the second to third quarter of 2009, with a decline in consumer financial vulnerability during the fourth quarter of 2009. As economic growth improves in 2010, coupled with higher levels of job creation, lower levels of consumer financial vulnerability are expected.

However, no large-scale decline in vulnerability is expected as the main reasons for vulnerability remain largely unaddressed.

These include very high levels of poverty, high levels of unemployment, ineffective functioning of wealth transfer and service delivery institutions, high levels of indebtedness and defaults on repayments, low skills levels, and the socio-economic impact of HIV/AIDS, said FinMark Trust and BMR.

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