Towards the end of November 2020, the Momentum/Unisa Household Finance Insight Report for 2020 was released. A specific analysis was done to estimate the impact of Covid-19 and the lockdown on household finances to, among others, determine the magnitude of the effects and identify the households who were hardest hit and those who managed to weather the storm better.
Due to the lockdown and restrictions imposed it was impossible to directly measure the variables. However, it was possible to approximate the trends at a very high level.
The report shows that differences exist between the way households were impacted, and the duration of this impact. For instance, some households lost all, or part of their income from work (affecting their physical capital), while others lost some of their wealth (impacting their asset capital). Another group of households lost both.
To further obtain households’ views on how they were impacted during the lockdown period, an online survey was conducted among South African adults during August 2020.
Households identified several financial struggles they experienced since the start of the lockdown and those they are still struggling with. The main categories are:
|●||Loss or reduction of income;|
|●||Paying their debts;|
|●||Making ends meet; and|
|●||Maintaining their standard of living.|
Their real concerns and struggles were categorised in the following order of importance:
|●||Not able to provide family and friends with financial assistance;|
|●||A reduction in salary income;|
|●||Not having enough emergency savings to cover unplanned financial expenses;|
|●||Struggling to cover their monthly necessities, as well as luxuries|
|●||Not able to pay for medical expenses not covered by a medical scheme;|
|●||Struggling to pay their debt.|
Interestingly, becoming unemployed was only the eighth biggest struggle for the surveyed respondents.
Some households were fortunate not to experience any direct financial struggle, while others experienced several. Almost 50% of households reported that they experienced none or only one financial struggle; about 30% said two or three struggles, and the remaining 20% more than four financial struggles.
People who experienced financial pressure due to a salary reduction dealt with the challenge by reorganising their spending pattern. This involved changing their store of preference, updating their budgets and cutting back on luxuries (financial management), and managing their debts. Their need to survive in the short-term is evident from more of them reporting that they reviewed their short-term goals and took payment holidays before they spoke to a financial adviser.
Many households’ advice to their “pre-lockdown selves” include building an emergency fund, avoiding debt, spending less on non-essential items, taking out protection cover and, arguably most importantly, self-improvement in the form of improved education and financial knowledge.
Click here to download the 35-page report that also includes seven habits of households that can weather a financial storm – good tips to share with your clients.