The government’s decision to allow more economic activity during the third quarter of 2020 (Q3 2020) relieved some of the financial strain that several consumers had to endure during Q2 2020. This is evident from the Momentum-Unisa Consumer Financial Vulnerability Index (CFVI), which improved to 43.5 points in Q3 2020 from its lowest ever level of 35.4 points in Q2 2020. However, consumers’ financial desperation levels were still very high, given that the CFVI was at its second lowest level since its inception in Q2 2009.

During Q3 2020 the government relaxed the lockdown from level 3 to level 2 midway through the quarter and then to level 1 by the end of the quarter. This contributed to an improvement in the four sub-indices of the CFVI:

• The income vulnerability sub-index improved most – from 34.6 points in Q2 2020 to 44.1 points in Q3 2020 as more consumers were able to earn an income, or increase their income;

• Expenditure vulnerability decreased as the sub-index increased from 39.0 points in Q2 2020 to 45.9 points in Q3 2020;
• Likewise, the savings vulnerability sub-index increased from 36.0 points in Q2 2020 to 43.1 points in Q3 2020;
• Debt servicing vulnerability also declined as the index score increased to 40.8 points in Q3 2020 from 32.1 points in Q2 2020.

As part of Momentum's Science of Success campaign, the Index is one of the reports produced in the partnership between Momentum and Unisa that aims to provide South Africans with information and strategies on how they can accelerate their journey to financial success.

The CFVI and its sub-indices are compiled from the views of key informants (researchers, banks, insurers, retailers, government, etc.) that deal with consumers daily. They identified several macro and consumer specific reasons that affected consumer finances during Q3 2020.

The macro reasons include Covid-19 and the lockdown; the resulting job and income losses in Q2 2020; opening of the economy in Q3 2020 and regaining some of the lost jobs; the inability of the economy to regain most of the lost jobs in Q2 2020; and general economic circumstances. However, they noted several consumer behavioural reasons (see figure below) that both contributed to the improvement in consumer financial vulnerability levels, but also explained why financial vulnerability levels remained high during Q3 2020.

For instance, behavioural reasons they noted for the improvement in the Q3 2020 CFVI are that (compared to Q2 2020) more consumers: demonstrated self-control when it comes to spending; lived within their means; expanded their income; did financial planning; used credit responsibly; were empowered to deal with their finances; considered the risks when taking on credit; increased their financial literacy; learned to adapt to changing financial conditions; shopped around before purchasing goods and services; and had more access to financial products.

Reasons for less, but high financial vulnerability levels
(Indicated by the percentage agreement to the following statements)



However, the same reasons shed light on why consumers’ financial vulnerability remained high. For instance, although the 19.8% of key informants that agreed that consumers demonstrated more self-control when it comes to spending is almost twice the 10.1% recorded in Q2 2020, this percentage is very low. For consumer financial vulnerability to decline to sustainable levels, this percentage, and those of the other listed reasons, should be higher than 60%.

Although the key informants noted that a further improvement in the CFVI in Q4 2020 is likely, the outlook for a quick recovery in the state of consumer finances is not good:

• 64.2% of key informants are of the opinion that it will take 18 months or longer for the state of consumer finances to return to their pre-Covid-19 level;
• Due to this desperate situation, 32.4% of key informants noted that consumers seem to be more worried about their finances than staying safe against the Coronavirus, whereas only 26.7% believed that consumers were more worried about staying safe against the Coronavirus.
• 66.0% of key informants also noted a decline in consumers’ perceived levels of control over their financial situations (i.e. personal empowerment).

Overall, the Q3 2020 CFVI results means that although the degree of consumer financial vulnerability subsided in Q3 2020, a quick recovery in consumer finances to pre-Covid-19 levels should not be expected.