A lack of emergency savings left households vulnerable to the economic shock of Covid-19.

The last five years have been tough for South African consumers as salaries failed to keep up with inflation, unemployment grew, and debt levels increased.

This left us extremely vulnerable to the economic shock of the Covid-19 lockdown. Data shows that the typical middle-income earner has no savings, yet is spending on debt repayments as well as non-essential items like travel and liquor.

According to Raj Makanjee, Retail CEO at FNB, very few South Africans have enough ‒ if any ‒ emergency savings. Research conducted by FNB found that more than 80% of its middle-income customers (those who earn between R15 000 and R42 000 per month) have no or limited savings that they are able to access within seven days in case of an emergency. Around 27% have no emergency savings, and 56% have savings amounting to less than one week’s worth of take-home pay.

The research looked at all money that customers have available across transactional and savings accounts, as well as prepayments on access facilities like credit cards or home loans which they can access within 7 days.

FNB’s research found that less than 6% of the bank’s middle-income customers have emergency savings that would see them through a loss of regular income for three months or longer.

Income doesn’t determine savings levels

Doret Jooste, CEO of Retail Money Management at FNB says, “Comparing customers with the same level of income but different savings levels, we found that customers with low or no savings tend to be spending more on discretionary spend categories like travel, holiday accommodation and liquor.”

The comparison also revealed that lower savers tend to spend more on servicing unsecured debt, like retail loans and credit cards, than customers who are saving more.

“This shows that rather than income determining savings levels, the everyday decisions we make on spending or how much debt we take have a big influence on our savings levels or our ability to be financial resilient,” adds Jooste.

The latest figures from the TransUnion Consumer Pulse Study (formerly called the Consumer Financial Hardship Study) confirm that debt levels remain unsustainably high for many South Africans.

Nearly 9 out of 10 (87%) consumers remain concerned about their ability to pay their bills and loans. This is despite an improvement in overall household finances since November 2020.

The Consumer Pulse Study, which aims to better understand the financial impact of Covid-19 on consumers, showed that 62% of consumers reported in March 2021 that their household income is currently negatively impacted by the Covid-19 pandemic.

While this is an improvement on the 82% of consumers impacted in the week of 30 November, it still means that more than half of South African households are feeling the pain.

TransUnion South Africa’s Head of Financial Services, Andries Zietsman, says the improvement between November and March was largely due to the South Africa economy showing signs of increased activity after emerging from the second wave in February.

Pandemic impact still being felt

However, since the first round of surveys in April last year, the pandemic is still impacting the finances of most households.

The latest study found:

• Only 3% of surveyed households indicated that their finances have fully recovered from the negative impact of the pandemic, and just over half (51%) said they have not yet recovered;
• Almost 3 in 4 impacted consumers (74%) have cut back their discretionary personal spending, 42% cancelled subscriptions/memberships, and 38% have cancelled or reduced digital services;
• Ability to pay bills and loans has increased from 84% in December 2020 to 87% in March 2021;
• Fraudsters are keeping consumers on their toes: 37% of surveyed South African households are aware of a fraud attempt targeted at them, and 5% fell victim to the attempt.

The silver lining is that the pandemic has highlighted the need for savings. Of those surveyed in the Consumer Pulse Study nearly 100% of respondents think saving for unexpected events or financial setbacks is important, and 83% of households now view savings as more important than they did before the pandemic.

However, households are still facing challenges in achieving their financial goals due to insufficient income (61%), high expenses (45%), and unexpected emergencies (39%).

What South African households need to do now is focus on reducing debt, stop using store cards and credit cards to fund extrtavagant lifestyles, and commit to putting money away for a rainy day.