Perfect storm hitting South Africans earning more than R20,000 per month
South Africa’s middle class is caught in the perfect storm of overindebtedness, where they are expected to pay off loans at 15-year high interest rates while the rising cost of living eats away at shrinking salaries.
The latest DebtBusters Money-Stress Tracker shows that South Africans earning R20,000 or more every month have unsustainable debt levels, spending half of their take-home pay covering debt.
The Money-Stress Tracker, published and conducted by DebtBusters, surveyed 26,000 South Africans who are not in debt counselling.
This makes it one of the largest online surveys about how financial stress impacts South Africans’ lives.
The report showed that South Africans’ levels of financial stress have remained high for the past three years and that 70% of those under 55 said they worry about finances.
While the survey touched on many points, a major concern was the amount of after-tax income spent on debt, especially those who earn R20,000 or more every month.
68% of respondents spend more than 30% of their after-tax income on debt repayments. Of these, 53% use more than 40% of their paycheques to service debt.
Generally, consumers are advised not to spend more than 30% of their take-home pay on debt repayment—at most 40%.
The research highlighted that up to 62% of South Africans earning over R20,000 have unsustainable debt levels. Of these, 46% spend 50% or more on debt repayments.
What’s shocking, however, is that those who fit into this income bracket have the highest number of people who believe that they don’t need debt counselling, over 73% of them, to be exact.
The research clearly reveals that older people with higher incomes are under the greatest debt repayment pressure yet are most resistant to seeking help.
They cite not knowing who to trust as the main reason for inaction.
By contrast, 54% of younger consumers show intent in dealing with money stress, although they are not always sure of the options available to them.
The under 35s said they are embarrassed, while the 35 plusses tend to procrastinate.
Adding to this is that banking institutions, like Standard Bank, have also noted the strain this income group is under.
Standard Bank has cautioned that many South Africans earning over R25,000 struggle to save money for emergencies.
According to Standard Bank data, over half (52%) of entry-level private banking clients have less than one month’s salary saved for unforeseen circumstances such as retrenchments or urgent medical procedures.
The bank attributed this trend to tough economic conditions and high cost of living.
Without savings, many people have had to rely on debt, which undermines their ability to accumulate wealth over time.
Doret Jooste, Head of Money Management and Advisory at Standard Bank, emphasised the need for consumers to rethink their savings behaviour.
South African consumers are facing more financial pressure on top of their already tight budgets.
South Africa is currently experiencing low economic growth (0.3% in 2023), and the latest unemployment rate was 32.9% in Q1 2024.
High borrowing costs at a 15-year peak and elevated inflation are also affecting South African consumers.
The South African Reserve Bank hiked interest rates to their highest levels since 2009 back in May 2023 and has held it there since. In its latest meeting (18 July), the bank held the repo rate at 8.25%, with prime at 11.75%.
While the next move for rates is expected to be a 25 basis point cut in September, this still reflects 16 months of rates at these highs, costing the average household with a vehicle and home loan an extra R70,000, on average, since rates where put on hold in May 2023.
Compounding the issue, data from PwC shows that salaries in South Africa have been losing value over the past three years in real terms, coming in under inflation. This trend is expected to continue in 2024, and only turn the corner in 2025.
Loading ...
