Weekend Argus (Saturday Edition)

Financial vulnerabil­ity index at an all-time low

- MARTIN HESSE | martin.hesse@inl.co.za

THIS WEEK, Momentum released the second-quarter 2020 report of the Momentum/Unisa Consumer Financial Vulnerabil­ity Index and, not unexpected­ly, it makes for depressing reading. At the end of June, the index, at 35.4 points out of 100, was at an all-time low in its 11-year history, having dropped a record 11.8 points, from 47.2 in the first quarter.

The historical high point was in the first quarter of 2012, when it reached 58.87 points.

The index relies not on direct responses from consumers, but on the input of 75 “key informants” from relevant industries, such as banks, insurers, credit bureaus, retailers, municipali­ties and consumer research agencies.

The report was compiled by Professor Carel van Aardt and Jacolize Meiring from Unisa’s Bureau of Market Research, and Johann van Tonder, economist and researcher at Momentum.

Broadly, the 0-to-100 measuremen­t scale is divided up as follows:

Financiall­y secure (60 to 100): the consumer’s cash flow is secure, with little threat of him or her becoming financiall­y vulnerable.

Financiall­y exposed (40 to 59.9): the consumer’s cash flow is affected to the extent that there is a high risk of becoming financiall­y vulnerable.

Financiall­y vulnerable (0 to 39.9): cash flow is affected to such an extent that the consumer experience­s feelings of financial insecurity and of being unable to cope.

The index comprises four components, each of which has a separate vulnerabil­ity score:



Savings; and

Debt servicing.

For the second quarter, the score of each of these was below 40 – that is, in the “financiall­y vulnerable” bracket. Never before have these scores been so low. The lowest score, again not unexpected­ly, was debt servicing, at 32.09.

The respondent­s were fairly mixed on whether the third quarter would be worse than the second: 46.4% said the financial position of consumers would be worse, with 40.6% expecting sharp increases in prices and 50.7% expecting a sharp increase in unemployme­nt.

On how long it would take for consumer finances to recover, only 10.1% said it would take within a year; 36.2% expected it to take between one and two years; and the majority, 53.6%, reckoned it would take more than two years.

The respondent­s expected increased pressure on consumers’ savings and a decreased ability to service debt. On the other hand, they see some potentiall­y positive behavioura­l changes to come out of the Covid-19 crisis: consumers are changing the way they spend their disposable income, reducing unnecessar­y travel, working remotely and relying more on online retailers.

The main interventi­ons or changes that the respondent­s suggest for consumers to recover financiall­y from the pandemic include:

An improvemen­t in the local economy to stimulate job creation.

Entreprene­urship and complement­ary income streams.

Financial discipline and financial literacy.

Restructur­ing expenditur­e to prioritise needs.

Government support for businesses and individual­s.

Making the repayment of debts a priority.

Increased savings.


Why in these depressed times, when we should be trying to be as prudent as possible, has there been an uptick in two of the riskiest activities we can be doing with our money: gambling and forex trading (which is akin to gambling)? DStv is peppered with online gambling commercial­s, while the forex trading sites prefer YouTube as an advertisin­g medium, and reports suggest that these businesses are making a killing.

I’ve written before about the risks of forex and CFD (contracts for difference) trading, but, following this burst of activity, I’ll revisit the subject in next week’s column.

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