South African consumers are struggling – but still find money to splurge

Consumer finances in South Africa are still in a dire state – despite this, some are still splurging on “feel-good” purchases.

According to the latest Consumer Financial Vulnerability Index (CFVI) from Momentum and Unisa, cyclical factors have kept consumer finances fragile in Q3 2023, but structural issues have become the main issues to consumer finances.

Political instability and corruption, unemployment, poverty and inequality and load shedding were named as the main structural impediments to improving consumer finances.

That said, there was a slight increase of the CFVI from 49.3 points in Q2 2023 to 50.9 points in Q3 2023 due to a better cyclical economic environment, driven by a declining CPI, steady interest rates and income-earning developments.

Although consumers are less financially vulnerable, they are still in despair.

The improvement was seen in all four of the major subcomponents, with income (49.9 to 52.0), expenditure (52.3 to 52.9), savings (47.3 to 49.3) and debt servicing (47.7 to 49.4).

“The improvement in the CFVI and its four sub-indices was driven by an increase in consumers’ access to an income via both employment and transfers from family and friends. This had a positive domino effect on the other three subcomponents,” the report said.

“Although consumers still limited their purchases, the better income combined with lower CPI contributed to an improvement in the expenditure index as they were better able to afford their expenses.”

“Likewise, combined with stable interest rates, the higher income improved consumers’ ability to service their debt, though they were still vulnerable in this department.”

The greater access to income and the ability to afford expenses and debt service costs allowed for more emergency savings.

That said, consumers could not add more to their retirement savings as the savings index remained below 50 points.

Overall, consumers were more cautious and less impulsive in Q3 2023 compared to Q2 2023 and Q3 2022.

Despite being less financially vulnerable in Q3 2023, the majority were still dissatisfied about their financial situation.

Regardless, there was an increase in “feel good” purchases from 44.6% in Q3 2022 to 62.9% in Q3 2023 as consumers had more income allowing for such.

In addition, although the cyclical factors, such as high interest rates and inflation, continue to be major risks to consumer finances, two structural risks – load shedding and political instability and corruption – grew in importance over the period.

Looking ahead

When looking at Q4 2023, structural risks are expected to be the biggest issues, as the effect of cyclical factors is expected to subside.

“Persistent unemployment, poverty, and inequality and continuous load shedding are expected to be the highest risks to consumer finances in Q4 2023,” Momentum and Unisa said.

“Although another structural risk, political instability and corruption, moved down to the fourth highest risk, this should be viewed in context. It is a relative issue – its risk measurement was at the exact same level as in Q2 2023, but other factors are expected to become even higher risks in Q4 2023.”

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