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The quarterly index, produced by the Bureau of Market Research (BMR) of UNISA for MBD Credit Solutions in association with FinMark Trust, was released on Thursday, October 13.
“With the current economic climate where complex international and domestic factors have a bearing on the local market, having a better understanding of consumers’ financial vulnerability is imperative. The CFVI is a handy barometer of this and along with other economic indexes in the market can assist business in planning for the future,” said Charl van der Walt, CEO of MBD Credit Solutions.
Global Economic Turmoil Putting Consumers Under Pressure
A review of the year on year growth has showed that the CFVI has remained fairly flat, with a slight improving trend. However the worsening of results in the first two quarters of 2011 reverses this trend and reflects that consumers are starting to feel the pressure in a stressful domestic environment, influenced by the global economic turmoil.
“This increase is unfortunate but to be expected when one considers the sharp slowdown in the country’s economic growth from 4.5% in the first quarter to 1.3% in the second quarter,” Professor Bernadene de Clercq of Unisa’s BMR said at the Q2 CFVI announcement this morning at a breakfast hosted by MBD Credit Solutions in Johannesburg.
The CFVI measures consumer financial vulnerability based on a 10-point scale where ‘0-1.99 is financially very secure; 2.0-3.99 is financially secure; 4.0-5.99 is somewhat financially vulnerable; 6.0-7.99 is financially vulnerable and 8.0 - 10’ indicates financially very vulnerable.
When compared to the first quarter, consumers felt more financially vulnerable in the second quarter of 2011 in terms of their income and savings, but yet felt less vulnerable regarding their spending and debt servicing abilities. The index attributes this to the fact that while high unemployment and poverty rates impact negatively on the ability of consumers to generate income and to save, consumers feel that they are able to keep household expenditure in check for now.
Unemployment and Low Salary Increases Put Consumers Under Pressure
The level of income vulnerability increased as consumers started feeling the effects of unemployment and the impact of salaries and wages not growing as fast as in previous years. Unemployment rose by 158 000 between the first and second quarter of 2011, according to Stats SA; annual compensation grew 9.4% between Q2 2010 and 2011 compared to 14.5% in the corresponding period of 2009 to 2010.
“Spending more means less savings and thus the increase in levels of savings vulnerability,” Professor Bernadene de Clercq commented. The increase in savings vulnerability, she added, is also due to the JSE All Share index having remained flat over the last 12 months, hovering around the 30000 level since October 2010 – the majority of pension assets of households are invested in the JSE where moderate growth will negatively influence consumers’ long-term retirement prospects.
Though the debt situation improved slightly in the second quarter, consumers are still experiencing high levels of financial vulnerability regarding debt. This is evident from the percentage of consumers with impaired records increasing slightly from 46.4% in Q1 2011 to 46.7% in Q2 2011. This is to some degree countered by the cost of debt remaining at all time lows.
Turning to the perceptions of the key informants regarding consumer financial vulnerability during Q2 2011, a mixed picture appears. On the negative side, 67.9% of key informants indicated that consumers’ ability to save did not improve during the past twelve months, 57.5% indicated that the ability of consumers to make ends meet did not improve, while 53.8% indicated that consumers were unable to manage their financial situations. Key informants were divided on the outlook of employment.
Furthermore 84.9% of key informants believe that consumers are over indebted; 76.4% said that consumers are enhancing their income with more credit facilities; and 74.5% believe that an increasing number of consumers are in arrears for three months or more.
The reasons quoted by most of the key informants as a specific reason that ‘often’ brings about financial vulnerability among consumers, are:
• Consumers are spending more than they earn;
• Bad financial planning;
• Too much debt;
• Not having sufficient savings to draw on;
• Low income; and
• Job losses
Look out for the next release of the CFVI results in December.
• Consumers financial strain worsens between first and second quarter of 2011
• Consumers felt more financially vulnerable in terms of savings and income
• Consumers under less pressure as they felt less financially vulnerable in terms of spending and debt servicing
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