Warning to South Africans as finances crumble

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The most recent Momentum-Unisa Consumer Financial Vulnerability Index (CFVI) showed that the consumer finance situation in South Africa deteriorated in the second quarter of 2022 and slipped back to a very fragile state.

According to Johan Van Tonder, economist for financial wellbeing at Momentum, this striking drop can be attributed to sharp increases in the prices of fuel and food products, tax shedding, rising interest rates and low economic growth.

“Every sub-component of the index this quarter has deteriorated, including income, expenses, savings and debt service,” said Van Tonder.

The index for the second quarter of 2022 indicates that the country’s debt service remains the biggest obstacle for consumers. “It was even found that consumers’ ability to pay off their debt deteriorated to the extent that they had to seek outside help to cope with their debt burden,” the economist said.

The study also identified side effects of a more financially vulnerable society, including a great deal of strain on relationships with family, friends and colleagues. This is compounded by the fact that this financial vulnerability would consume the minds of consumers and thus negatively impact their productivity in the workplace.

However, the financial vulnerability experienced in this quarter had an overall positive effect on consumer financial behavior. “It largely changed for the better in response to the increased financial vulnerability experienced in the second quarter. It makes sense, as increased pressure leads consumers to become more cautious and more cautious when it comes to their money,” he said.

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Several risk factors for consumer finances were identified in the CFVI report for the second quarter of 2022. Strong increases in municipal rates will pose a further risk to consumer finances in the third quarter of 2022, in addition to current risks such as higher interest rates, fuel and food prices and tax cuts.

“We have seen record high fuel and food prices,” says Van Tonder. “Add to that a sudden rise in interest rates and it’s no surprise that our consumer finances will remain vulnerable in the third quarter of the year.”

The most recent CFVI indicates that consumers’ financial vulnerability is likely to persist in the short to medium term, given a growing number of structural imbalances, downside risks, political and social instability, rising poverty and inequality, as well as governance and government administrative deficiencies.

“The future of our economy is not positive, nor is employment or household income. This is going down in an all-encompassing way when it comes to consumer finances,” the economist said.

Annual consumer inflation rose from 6.5% in June to 7.4% in May, mainly due to rising transport and food prices, data from StatsSA shows. The June rate is the highest level since May 2009 (8%) when the economy faced the headwinds of the currency’s depreciation during the global financial crisis.

Debt Rescue noted that while motorists will see a drop in the price of gasoline for both 93 and 95 octane R 1.32 per liter on Wednesday (Aug. 3), it will make no real difference to the lives of most citizens who have had to absorb huge fuel price increases over the past year.

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Year-over-year data shows a 38% increase from R18.11 on August 4, 2021 to R25.42 on August 3, 2022.

“While the government should be commended for starting the process to introduce a 93-octane gasoline price cap, the reality is that much more is needed to prevent millions of consumers from sinking into poverty,” said Debt CEO. Rescue, Neil Roets. .

“Long, drawn-out government plans – with all good intentions – likely to be implemented until 2023, will simply be too little too late,” he said.

Roets warns that by far the most pressing problem is food inflation and the resulting misery.

“With nearly 20 million people going to bed hungry every night, and 7 million chronically hungry, now is not the time to turn a blind eye. The well-being of the very young and the very old is at stake here. In addition to the destruction of entire communities, we must be deeply concerned about social instability. The warning signs are there for everyone to see.”

According to the monthly retail report from market research and global consultancy NielsenIQ, based on sales data obtained from 10,000 Woolworths, Spar, Pick n Pay and Checkers stores across the country, rising food inflation is forcing SA consumers to buy items such as fresh milk and Viennese sausages from their list of essentials.

The acceleration of consumer inflation to its 13-year high is clearly reflected in shopping patterns, the market research firm said in its latest SA retail report, with sales volumes of items such as frozen meats and cooking oil beginning to show significant declines as rising prices bite, Roets said. .

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“The sad reality is that more and more credit-worthy consumers will be purchasing these and other essential foods and household items every month with their credit card and store cards just to make ends meet,” he said.

Tips to improve the financial resilience of consumers

While the outlook is more negative this quarter, Momentum offers some tips to help you shop smarter:

  • Make a shopping list in advance and stick to it. Be sure to limit your time in the store and buy only what is necessary.
  • Shop around for the best prices on the items to buy, taking into account the weekly store flyers, newspaper ads, and visiting the stores’ websites or applications.
  • Get to know the food prices. Write down the normal prices of food you often buy. This will help you find out which stores have the best prices and whether you’re getting a good deal on items on sale.
  • Always check the best before date on the food to reduce premature spoilage and wasted money.
  • Use a basket instead of a cart, because you have less space and you have to limit your purchases to what is necessary.

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