SA consumers optimistic about their finances in the face of economic hardships - Study
South African consumers remained optimistic about their finances, despite current economic challenges that include high inflation and recent interest rate hikes, according to a survey by global information and insights company TransUnion survey.
Weihan Sun, Director of Research and Consulting at TransUnion Africa, said that while consumer optimism reflected resilience and showcased the potential for recovery and growth, the financial status of households continued to vary widely between different demographics and age groups.
Six out of 10 (62%) of consumers expected to be able to meet their current bills and loan obligations in the coming quarter, although half (50%) of Gen X respondents (born between 1965-1980) were worried about their ability to pay all their bills.
“While one-third of families report an increase in their income, almost a quarter are facing a decline. Most people remain optimistic about their future income, but the management of debt remains a major concern. As a result, we’re seeing consumers changing their spending behaviour by reducing discretionary spend and cutting back on big-ticket purchases,” said Sun. “This could have knock-on effects in sectors like retail, automotive and real estate in the short to medium term,” Sun said.
The survey found that about one third (34%) of households saw an increase in income in the second quarter of this year, with seven in 10 (72%) expecting their income to increase in the next year.
According to TransUnion’s quarterly Consumer Pulse Study, the income growth was being driven largely by salary raises (17%) and starting new businesses (15%). For the 24% of households who saw their income drop last quarter, job losses (21%) and cuts in wages or salaries (17%) were the main contributing factors.
According to Stats SA, South Africa’s annual consumer inflation slowed to 6.8% in April, from 7.1% in March. This was the lowest since May last year, when the rate was 6.5%. TransUnion said cooling inflation would be welcome, particularly around food prices. South Africa avoided a technical recession with the economy growing by 0.4% in the three months to March this year, after a 1.1% decline in the prior quarter.
Nearly six in 10 (58%) respondents had reduced discretionary spending, with 36% canceling subscriptions or memberships.
Gen X and Baby Boomers (born between 1946-1964) had made the most significant cuts in discretionary spending, at 67% and 79%, respectively. Four in 10 Baby Boomers (41%) expect an increase in bills and loans, while both Millennials (1981-1995) and Gen Z (1996-2012) intended to increase contributions to retirement funds and investments, reflecting a generational pivot towards securing long-term financial stability.
Earlier this week, Lee Bromfield, Chief Executive of FNB Insure said that one common behavioral trend that they had observed year-on-year was that when consumers were faced with immense financial pressure, they often either skip paying insurance premiums for certain months or cancel their policy, hoping to take it up later when their financial situation improves.
An overwhelming 89% of South African consumers were said to recognise the importance of access to credit and lending products for achieving their financial goals. This sentiment was particularly prevalent among younger generations. However, only a third (34%) believed they had sufficient access to credit, with only 31% of Gen Z consumers believing their access to credit was sufficient.
Despite these concerns, only a third of consumers planned to apply for new or refinance existing credit in the coming year, with 29% planning to apply for a personal loan and 28% for a new credit card. Nearly half of those who intended to apply for credit or refinance abandoned their plans, due to the high cost of new credit (35%), fear of rejection due to income or employment status (26%) and finding alternative funding sources (23%).
Regarding credit monitoring habits, the data revealed a stark contrast among consumers as while 92% of consumers believed keeping track of their credit reports was crucial to effective financial management, only 50% did so at least monthly, and 21% never checked their credit reports at all. Nearly half (48%) believed their credit scores would improve if businesses used non-standard data such as rental payments, gym membership payments, or buy now, pay later (BNPL) services to help calculate their scores.
Digital fraud remained an issue for South African consumers, with just over half (57%) reporting they have been the target of fraud schemes in the last quarter. Of those, 9% fell prey to a scam. The most prevalent type of fraud attempts were money/gift card scams (37%), phishing schemes (where fraudsters try and get personal information through fraudulent emails, websites, or social media platforms, 36%), and smishing (using text messages to trick recipients into divulging personal information, 32%).
Sun said that overall, it was clear that consumers were at risk of falling victim to scams. "This indicates a significant need for stronger security measures and robust fraud prevention strategies in the digital space.”
BUSINESS REPORT