Debt-ridden SA consumers ‘not out of woods yet’

Consumers are feeling more financially vulnerable than last year, despite a fairly stable local economy, according to the latest Consumer Financial Vulnerability Index.

The index, which was compiled by the University of South Africa (Unisa) and funded by MBD credit solutions and released on Thursday, reflected the findings of consumer sentiment for the second financial quarter of this year.

Developed in 2009 and widely used as an indicator of consumer wellbeing, the index is based on vulnerability predictors such as consumer income, expenditure, savings and the ability to service debt.

Financial vulnerability scores are formulated for each financial quarter based on data from a range of sources indicating consumer sentiment.

A score of zero indicates a very financially secure individual, while 10 indicates a very vulnerable person. “Most South Africans fell in the middle,” said Bernadene de Clercq, head of Unisa’s personal finance unit.

In the second quarter, the overall consumer vulnerability was 4.46, higher than last quarter’s 4.39 score and 4.23 in the fourth quarter of 2010. Until now vulnerability had been consistently dropping from a score of 5.17 in 2009. “Things are turning around, people are feeling more vulnerable again,” De Clercq said.

But she warned the data was not based on the economic trends. “It’s not over indebtedness, but the consumer’s perception of what’s happening in his world.”

Carel van Aardt, the director of research at Unisa’s Bureau of market research, said there were a number of reasons for the increased vulnerability, noting that the latest business confidence statistics by Rand Merchant Bank/Bureau for Economic Research showed a similar decline since the end of last year.

“GDP growth hasn’t fluctuated much but perceptions about the economy and perceptions about risk [looking at economies overseas] — has definitely had an impact on vulnerability.”

Van Aardt added that the stagnation of employment raised the vulnerability of people. He noted that the link between GDP growth and employment was weakening — “for every percentage of economic growth, there is 0.2% employment growth”.

Savings vulnerability was also flagged. Van Aardt said expenditure in poor households in the UK was 80% of their income, while affluent households spent 60%. But in South Africa, poor households spent 122%, while affluent households spent 97%.

Debt servicing vulnerability had declined since 2009, but picked up at the end of last year again. About 47% of credit active consumers were in arrears for at least three months — or they were already blacklisted, showing that credit active consumers were deeply indebted.

“While more people are in arrears, more are getting in contact with credit providers to make arrangements to service their debt,” he said.

The researchers predicted the trend would continue through the third and fourth quarter. “It’s very clear the South African economy and the South African consumer is not out of the woods yet,” said Van Aardt.

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Lisa Steyn
Lisa Steyn is a business reporter at the Mail & Guardian. She holds a masters degree in journalism and media studies from Wits University. Her areas of interest range from energy and mining to financial services and telecommunication. When she is not poring over annual reports, Lisa can usually be found pottering about the kitchen.

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