What is your financial breaking point – How many South Africans can afford a R50,000 emergency in 2017

24 July 2017

Research published by financial services group, Old Mutual, shows how many South Africans would be adequately prepared for a one-off financial shock of various denominations, ranging between R1,000 and R100,000, given the decline in the macroeconomic environment over the past year.

In its Key Savings & Investment Trends report 2017, Old Mutual found that most households are under immense pressure and making it from pay day to pay day is a fine balancing act.

The research is comprised of interview among working South Africans living in major metropolitan areas, and examined attitude to finances in general and savings in particular.

Old Mutual used the following 5 income brackets:
  • Less than R6,000 – 22%
  • R6,000 – R13,999 – 28%
  • R14,000 – R19,999 – 14%
  • R20,000 – R39,999 – 22%
  • R40,000-plus – 14%
Old Mutual said that, while there are claimed improvements – at least on 2016 – as regards ability to get by and stress levels, more objective measures such as the ability to cope with an unforeseen  expense of a defined monetary amount indicate that the bail point at which households put up their hands and say “we can’t handle this”, is coming even earlier for all income groups other than those in the R40 000+ earnings bracket.

In 2017, at total market level, all bar 1% working households can handle an unforeseen expense of R1,000. At R100,000 the vast majority (85%) would not be able to handle this sudden shock.

Below are the descriptions on how various households (across different income levels) would go about financing a financial shock.
Household income less than R6,000:
  • Friends, savings, and to a lesser extent stokvels, are the go-to sources for an unexpected expense of R1,000 in very low income households.
  • The tipping point comes earlier in 2017 with 42% unable to cope with an expense of R5,000.
 Household income R6,000 – R13,999:
  • Friends and savings are the primary sources for a R1,000 unforeseen expense.
  • Formal loans gain traction at R5,000, although access/reliance on personal loans shows a declining trend for amounts of R10,000 and over.
  • Over half cannot cope with an unforeseen expense of R10,000.
  • At R50,000 the vast majority of households in this bracket can’t cope
Household income R14,000 – R19 ,999:
  • Savings are the primary source for expenses of R1 000 whereafter borrowing steps in.
  • As the amount of the expense climbs, so borrowing from friends and family drops off in favour of institutional borrowing.
  • This income group is more resilient, and while “bail out” points are earlier than in 2016, they are only marginally so.
Household income R20,000 – R39,999:
  • Credit card continues to be used extensively up to R10,000.
  • Formal loans popular especially for amounts in R10,000 – R50,000 range.
  • Only half could handle an expense of R50,000 and 1 in 4 bail at R10,000.
Household income R40,000+
  • Credit cards are very popular for amounts up to R10,000.
  • Low incidence of loans from family/friends, with preference for formal loans for larger amounts.
  • Home loans also remain popular for amounts north of R50,000.
  • Resilience levels fairly steady.

Read: More than a third of South Africans have a side-job – here’s what they’re doing

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What is your financial breaking point – How many South Africans can afford a R50,000 emergency in 2017