Lockdown impact highlights the importance of financial advice in order to take control on households’ journey to success.

South Africa’s middle-class households were hit the hardest as a result of the Covid-19 pandemic and resultant lockdown, as both their physical and asset capital were severely impacted by factors beyond their control.

The good news is, despite the lockdown and other challenges experienced due to Covid-19, some already recovered – for several reasons – but mostly because they followed a specific recipe necessary to taste financial success.

This is according to the Momentum/UNISA Household Financial Wellness Insights Report for 2019/20, which provides information specially designed to inform and empower SA households to achieve financial success and recover from the possible impacts of life before, during Covid-19 and beyond.

At the Science of Success for Media hosted by Leane Manas, Johann van Tonder, Economist and Researcher at Momentum’s Insights Division, indicated that: “Even before the onset of the Covid-19 pandemic in the country, and the implementation of a lockdown period in March, the South African economy was not a positive environment within which companies and households could thrive. With decelerated economic growth and an increase in job losses, more and more South Africans have now become excluded from participating in economic activity.”

The report shows that those 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. The adjustments that were placed at the bottom of the list included reviewing medical aid, business closure or changing living arrangements.

“When the realisation set in that the Covid-19 environment would become a long-term reality, households’ interest in budgeting and financial planning increased. As lockdown restrictions were relaxed, however, interest began to wane gradually,” Van Tonder elaborated.

The report says: “Interest in savings increased up to level 3 of lockdown, whereafter it declined with the opening of the economy. Nearly the same pattern is visible for investments, which was also influenced by financial markets’ performance. When markets declined, the interest in investments increased, whereas the interest subsided as markets recovered.”

Weathering the financial storm – now and in the future

“To be better prepared for the journey towards financial success, it is important for households to gain a good understanding of the factors that are within their control and those over which they don’t have any control,” says Jacolize Meiring, researcher at the Bureau of Market Research of the University of South Africa. “It is vital for households to know that there are ways to self-guard them against some of these factors.”

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.

In order to limit the impact of factors beyond our control, Meiring advises households to minimise financial dependence on others (including government), spending on luxuries, increase savings (for emergencies and long-term, such as retirement, insure against the uncertain and access credible financial advice.

“South Africa faces various challenges when it comes to financial advice, but advice plays an invaluable role in helping individuals or households to improve their financial wellbeing,” says Meiring. “It is important to seek out a professional financial adviser who is focused on your needs, rather than just earning a fee or commission.”

Despite the lockdown and other challenges experienced due to Covid-19, some households managed to be financially successful.

The report reveals seven habits of households that can weather a financial storm:

* They map out their journey with measurable goals and a plan to achieve them.

* They maintain their momentum by knowing where every cent goes.

* They cover and protect themselves from rainy days.

* They make the bold but intelligent choice to invest.

* They don’t let speedbumps deter them from achieving their aspirations.

* They broaden their perspective by being financially savvy and streetwise.

* They realise there is more than one path to achieving success.

The research also provided a snapshot of the financial reality of women in South Africa, revealing that women were more at risk of losing their jobs during lockdown or working lower paid or less hours. This while women’s daily activities become more during the period.

“It is encouraging to note, however, that women in SA are making strides. We are seeing a visible improvement in certain areas, with more females obtaining a matric and graduating from higher education. The online survey results also showed that despite trying times, given the opportunity and correct guidance, women can improve their financial circumstances,” Meiring concludes.