Consumers less financially vulnerable in first quarter

CONSUMERS saw an improvement in their financial position in the first quarter of this year, largely because of the recovery in income generation among middle- and higher-income earners.

The latest Momentum-Unisa Consumer Financial Vulnerability Index (CFVI), released yesterday, improved from a low of 35.4 points in the second quarter of last year to 49.7 points, up from 47.5 points in the fourth quarter of last year.

The CFVI is compiled from the views of key informants, including researchers, bankers, insurers, retailers, government, economists and analysts who deal with consumers daily.

The main drivers of the improvement in financial stability, the CFVI noted, included a decline income vulnerability as consumers retained or obtained employment, lower levels of expenditure vulnerability, a decline in savings vulnerability as people turned to disposable income rather than their nest eggs, and the improved ability of consumers to service their debt.

“However, notwithstanding the improvement in the CFVI and its four sub-indices, the majority of consumers are still feeling financially exposed and insecure, meaning that any small adverse event, such as pay cuts, can contribute to a large deterioration in the state of their personal finances,” the index noted.

Consumers would still need interventions to maintain the financial stability. The main drivers of this would be improvements in the economy to stimulate job creation, financial discipline by limiting unnecessary expenditure and saving more, more astute financial planning, including setting attainable financial goals, and increased financial literacy, the index found.

It was also suggested that consumers generate additional income streams or start their own businesses and limit their uptake of credit and repay debt.

“However, consumer finances will remain volatile for some time to come following the initial shocks brought about by the Covid-19 pandemic and subsequent lockdown that started a year ago,” it noted.

“Although improving income-earning prospects was the main driver behind consumers’ experience of less financial vulnerability, all the sub-indices of the CFVI continued to recover, with all scores being higher than those last seen in the last quarter of 2019, except savings,” it said.

A trend witnessed in the second quarter of last year, when the hard lockdown was implemented, was consumers being more concerned about their finances than their health. This trend was evident again in the first quarter of this year.