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Main reasons consumers feel financially vulnerable

Cape Town - Consumers spending more than what they are earning, coupled with too much existing debt and bad financial planning remain the main reasons for consumer financial vulnerability levels, according to respondents to the latest MMI Unisa Consumer Financial Vulnerability Index (CFVI).  

The index report emphasises a need for changes in consumer behaviour, especially in a challenging and volatile macro-economic environment.

The index report states, however, that it would appear from available economic statistics for the third quarter of 2016 that consumers might have reason for some optimism.

The MMI Unisa Consumer Financial Vulnerability Index shows that the financial vulnerability of consumers declined during the third quarter compared to the second quarter of 2016, improving from 50.7 to 52.0 points.

Consumers’ financial vulnerability levels improved during the third quarter with regards to the savings, expenditure and debt servicing sub-components of the index. A more vulnerable score was recorded for the income sub-component.

Based on the measurement scale of the index consumers remained feeling mildly exposed towards expenditure and income, while moving from the brief very exposed position regarding their savings in the second quarter back to the mildly exposed category during the third quarter of 2016.

Concern

"Despite the improvement in the debt servicing component, this remains a concern for consumer finances as consumer continued to feel very exposed concerning their debt servicing capabilities," according to the index.

The savings vulnerability index improved 4.8% to 52.1 points, while the expenditure vulnerability index improved 4.5% to 54.7 points. The debt servicing vulnerability index improved 3.5% to 49.9 points, while the income vulnerability index deteriorated by 2% to 51.5 points.

Correlations between the MMI Unisa Consumer Financial Vulnerability Index and a selection of macro-economic variables show that the relationship between macro-economic variables and the CFVI declined from the first quarter of 2012 to the second quarter of 2016.

According to the latest CFVI report, this implies that such macro-economic variables appear to be weaker predictors of consumer financial vulnerability than in the past. Available statistics show that during the period from the second quarter of 2009 to the fourth quarter of 2011 a broad range of macro-economic variables were very strongly correlated with CFVI after which the relationships weakened. This means that the elasticity between macro-economic changes and consumer situations weakened from the first quarter of 2012 to the third quarter of 2016.

"This has serious implications for the anticipated efficacy of the National Development Plan (NDP) to address consumer financial vulnerability due to the assumed strong macro-micro linkages underlying the NDP," states the index report.

"Notwithstanding the slight improvement in consumer financial vulnerability levels during the third quarter of 2016, this shouldn’t be taken as a sign that consumers and the economy are out of the woods yet. High levels of volatility in consumer financial vulnerability scores remain, with no clear longer term indication of an improvement or deterioration."

Sustained improvements in consumer financial vulnerability are only likely following prolonged higher levels of economic growth, stronger macro-micro linkages combined with less uncertainty in the economic and political environments.

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