Economic uncertainties are adding pressure on consumers, who are feeling more financially stressed, an index revealed.
The MMI Unisa Consumer Financial Vulnerability Index declined from 52,71 in the last quarter of 2016 to 52,32 in the first quarter of 2017. The index is a quarterly indicator of how consumers feel about their income, expenditure, savings and debt servicing capabilities and is based on responses from 100 informants from several industries.
Consumers may consider what is happening in the economic environment and then draw conclusions on how this will impact them, explained Shelley van der Westhuizen, head of corporate financial wellness and client experience at MMI.
On the flipside, the index serves as a lead indicator for economic growth. The decisions consumers take may have a bearing on the future outcomes of gross domestic product growth, she told Fin24.
Van der Westhuizen explained a healthier score would be 60 and upwards. A result in the early 50s poses the risk of falling down to the prior level, she said.
Among major issues highlighted, the study shows that consumers have improving perceptions about their savings levels but that this is seasonal. Worryingly, consumers are feeling "very exposed" when it comes to their debt servicing abilities.
The index showed that 34.9 percent of the respondents felt unemployment was a critical contributor to their financial vulnerability. Under a third (32,1 percent) of respondents were concerned about the high cost of living and 27,4 percent were concerned about low income and insufficient salary increases. About 24,5 percent were stressed about too much debt and 21,7 percent about poor financial planning.
Income vulnerability increased as the index score dropped from 53,60 in the previous quarter to 53,02. More than half (56,8 percent) of the respondents were negative about their ability to earn income, or to acquire income from family or friends during the quarter.
The score is unlikely to improve, given the poor economic environment, the report suggested.
Making do with less
The expenditure vulnerability score deteriorated to 53,78 from 56,73 in the previous quarter. About 61,3 percent of respondents felt they could not stick to their expenditure budgets.
"Moderating inflation should provide some financial relief to consumers, but consumer spending is likely to remain subdued while confidence in the economic and political environment remains low," said the report.
Expenditure likely went down due to low income expectations, explained Van der Westhuizen. Consumers are holding back, particularly on non-essentials as they anticipate things getting worse.
"People are adaptable, making do with less," said Van der Westhuizen. People elect to cut back to shield themselves from being financially vulnerable.
Savings vulnerability improves
The savings vulnerability score increased from 50,83 points in the last quarter of 2016 to 52,32 points in the first quarter of 2017. This is part of a seasonal trend in the first quarter of the year, where consumers make an effort to recover "lost savings" as a result of spending during the festive season.
"People may feel less extraordinary demands and feel less vulnerable in terms of savings," said Van der Westhuizen.
The report also indicated that consumers expect their financial position to deteriorate in the first quarter of the year, which makes them cautious and willing to save more. However, the ability to save more is limited. About 61,3 percent if respondents felt their ability to save more in the quarter had not improved.
Debt servicing vulnerability rises
Consumers are "very financially exposed" when it comes to debt servicing. The debt servicing vulnerability score fell to 50,16 from 50,40 in the previous quarter.
About 60,4 percent of respondents considered reducing their financial commitments to repay debt in the first quarter. "The debt servicing vulnerability score could have been even worse had consumers not reduced other commitments," the report said. This in turn explains the increase in expenditure vulnerability.
"Households could consider reducing other commitments to pay debt. There is a link between demand from the expense side and directing cash flows towards debt repayment," said Van der Westhuizen. "People preemptively think things will get worse."
It is likely they would ensure their debt is in the "best position" to withstand stresses and shocks that come along, she said.
The report shows that less than three quarters (74,8 percent) of respondents indicate debt situations forced them to seek assistance from elsewhere. This is reflected in data from the Reserve Bank, which shows credit extension to households from banks slowed down to 0,6 percent.
"This means that consumers' ability to take up more credit decreased and there was less credit available to consumers."