August 2009

The new groundbreaking Consumer Financial Vulnerability Index shows that South Africans are at higher risk than might be expected, giving you as a credit provider even more reason to get the right tools and credit information to protect your business.

The Bureau of Market Research (UNISA) in partnership with FinMark Trust created the new index based on available international consumer financial vulnerability indices and the results of a South African consumer survey. The consumer survey was conducted across a sample of 976 consumers from all nine provinces in South Africa, together with 571 telephone interviews and 405 face-to-face interviews. Sixty key informants from municipalities, banks, retailers, credit bureaus and the motor industry were also interviewed to explore and explain the findings of the consumer interviews.

In short, financial vulnerability depends on various factors both outside a person's control, such as adverse economic conditions, and those that are specific, including levels of savings or debt.

The overall index and sub-indices are based on a ten-point scale where 0 indicates total financial security and 10 indicates total financial vulnerability. 

With a score of 5.17, South Africans are at risk, especially when compared with consumers in European countries measured on a similar index: Sweden would score 0.4, Norway 0.9, Denmark 1.3, Great Britain 3.1 and Ireland 3.4.

The results of the survey are as follows:

These scores show that while debt is a problem, other factors are significant in causing many South Africans to be financially vulnerable. The high level of income vulnerability is partly explained by the national poverty rate of 47% of households; however income vulnerability is being exacerbated by the economic downturn and job losses. The very low level of savings in South Africa is reflected in the savings vulnerability score of 5.74. Expenditure vulnerability is being spurred by the relatively high levels of consumer price inflation in South Africa, especially food price inflation.

The index also measures which sectors of the population are most susceptible to financial stress and, if conducted annually, whether the situation is improving or deteriorating. In the present economic climate, many South African consumers are facing financial difficulties. More than 400 000 South Africans have lost their jobs since the onset of the current recession, and about 42.4% of them cannot keep up with payments on their accounts even though they might have an income. However, the research shows that income security, level of savings, cost of debt and living expenses all play a part in consumers' financial wellbeing.

Someone who has lost his/her job and who has little or no savings will be financially vulnerable. Someone else, also faced with loss of income, but who has sufficient savings and social networks will be less vulnerable. Some high-income earners are financially vulnerable due to high debt service and living expenses, despite having income security.

The nationwide survey of South African consumers revealed that respondents believed they were financially worse off than a year ago, with nearly 35% of respondents indicating that their ability to make ends meet deteriorated during the past year.

As part of the research, account managers at organisations such as municipalities, communications companies and clothing stores were asked about the payment behaviour of their customers. They confirmed that over the past 12 months the financial situation of their customers had deteriorated.

TOP 10 REASONS FOR FINANCIAL VULNERABILITY ACCORDING TO ACCOUNT MANAGERS

Other findings of the research included:

• Nearly 45% of respondents said that what they spend is restricted by what they can borrow.
• Although respondents see the need for saving, SA Reserve Bank data shows that South Africans generally save very little. Probed about why they were not saving, about 35% of respondents indicated that they were struggling to make ends meet and did not have enough money to save.
• There are clear provincial differences. The provinces with the highest levels of vulnerability, the Eastern Cape, the Northern Cape and Mpumalanga, are among the poorest provinces.
• Consumers in more affluent provinces like Gauteng, although less vulnerable, still face financial stresses due to high debt levels and debt service costs.
• Rural dwellers are the most financially vulnerable, especially with regard to income and savings.
• Financial vulnerability is high in the age group 26 to 34 years when many young people are starting new jobs, marrying, setting up homes, buying property and cars.
• People in the 45+ year age group also appear to be vulnerable. Many become economically less active, widowed, divorced or dependent on children or the state for income as pensioners.
• Divorced and widowed people have a substantially higher level of overall financial vulnerability than those never-married and those who are married, and also have much higher levels of income and savings vulnerability than the other two groups.
• Educational status was found to be a strong predictor of vulnerability – the lower the educational status of consumers, the higher their financial vulnerability. There were differences in income, savings and expenditure vulnerability between people with no education and those with an advanced degree.
• People who are employed full-time, and people who are self-employed and are part of double-income households, have the highest level of income security.

10 MAJOR REASONS FOR HOUSEHOLDS EXPERIENCING FINANCIAL DIFFICULTY

For more information on the research study or index, please visit the FinMark Trust website at www.finmarktrust.org.za or contact Rashid Ahmed: This e-mail address is being protected from spambots. You need JavaScript enabled to view it or Marlene Heymans: This e-mail address is being protected from spambots. You need JavaScript enabled to view it

About FinMark Trust and The Bureau of Market Research (BMR)

FinMark Trust is an independent trust created with initial funding from the UK’s Department for International Development (DFID). The trust supports and promotes institutional and organisational development with the objective of increasing access to financial services to the unbanked and underbanked people of Southern Africa. The Bureau of Market Research (BMR) was established in 1960 as a collaborative effort between UNISA and industry. The BMR has four focus areas, namely demographic research, behaviour and communication research, income and expenditure research and economic research. The BMR provides contract research, syndicated research, skills development and database mining services to clients and BMR members.