Despite a slight improvement in finances experienced at the end of 2021, consumers in South Africa are still in an austere mindset and plan to cut discretionary spending over the next few months to shield themselves from the ongoing pressures of the Covid-19 pandemic.
This is one of the key findings from the latest TransUnion Consumer Pulse Study, which assessed the state of consumer spending and credit in the fourth quarter of 2021.
According to the consumer credit reporting agency, more than half of consumers (55%) say their household income remained negatively impacted by the Covid-19 pandemic towards the end of 2021. This number was the lowest in the year, down from 61% in August and 62% in March.
Despite the improvement, unemployment levels remain a major barrier to financial freedom. One in three (34%) surveyed consumers said someone in their household had lost their jobs, while a similar number (32%) said someone in their household had their salary reduced.
In all, 28% had work hours cut in the previous month, at a time when South Africa recorded its highest unemployment rate of 34.9%.
Lower-income consumers (households earning less than R50,000 per annum) were hardest hit, with nearly four in 10 (38%) indicating someone in their household lost their job in October 2021.
To combat the financial pressures, spending habits and shifts in household budgets took place across all households, mainly focused on discretionary spending. This category of spending typically involves non-essential items, covering things like eating out, entertainment, and travel.
Approximately 60% of all households, across generations, cut back on this spending, followed by cutting spending on things like subscriptions and memberships (34%) and digital services (29%).
On the spending side, households channeled funds into paying off debt (34%) and putting more into savings – for emergencies (30%) and retirement funds (20%).
These budget trends are largely expected to continue in the first quarter of 2022, with survey respondents pointing to a continued reduction in discretionary spending through to March 2022 (51%).
Consumers also expect to cut back on retail purchases (38%) and large purchases – like appliances and cars (43%).
Increased spending is expected in categories like retirement funds and savings (34%). In all other categories, spending is expected to remain fairly stable compared to 2021.
“While we’re seeing a slight improvement in the number of people financially negatively impacted by Covid-19, the study highlights the fact that many South Africans remain under pressure,” TransUnion said.
“November brought with it changed circumstances following months of lockdown, including municipal elections, increased freedom of movement, as well as increased load shedding. For many consumers, the economic recovery is slow and arduous and will undoubtedly have many more bumps along the way.”
Only 5% of consumers said their household income had fully recovered after being impacted by the pandemic. And while 58% of consumers were hopeful their household income would recover, 42% were less optimistic.
Among consumers who said their household income is currently impacted, 85% remained ‘highly concerned’ about their ability to pay their bills and loans. Unsecured credit remains their top worry, with the main items consumers cannot pay being personal loans (29%), mashonisa (informal and/or unregistered credit providers) loans (28%), private student loans (24%), and retail and clothing store accounts (21%).