South Africans earning over R15,000 a month are in serious trouble
South African consumers are taking on unhealthy levels of debt, with the middle-class and ‘wealthy’ segments—those earning over R15,000 and R35,000 a month—suffering the most and seeing more than half their take-home pay going to pay off what they owe.
Financial institutions across South Africa must ensure that new loans comply with the National Credit Act (NCA), which requires creditors to assess a borrower’s capability to repay a loan.
This involves an affordable calculation, which evaluates one’s income, expenses, and existing debt to ensure loan repayments can be met.
Standard Bank argues that if a debt-to-income ratio is higher than 43%, one should consider strategies to reduce their debt.
Debtbusters, on the other hand, said that debt over 30% of one’s income is dangerous.
Consumer insights and data science firm Eighy20 uses an “instalment-to-net income ratio,” which is calculated based on net monthly income or income after tax.
Eighty20 said that South Africa’s debt-to-income ratio has been notably high, with estimates, when using the median, suggesting that this ratio climbs to 54% on average across the population.
For the Middle Class (personal income of R15,000), the average instalment-to-net income ratio rises to 56%.
For the Heavy Hitters (top 5% of income earners), this rises to 63%.
“These figures appear significantly elevated compared to other benchmarks,” said Eighty20.
“This could either reflect potential data or modelling inaccuracies or indicate a broader issue with high debt burdens among South Africans.
“Using a median calculation makes the situation look slightly more manageable.”
“In a significantly unequal country like South Africa, we believe the median is more insightful because a small percentage of the population earns significantly more than the majority.”
The Heavy Hitters
The wealthiest South African segment in the country with the most assets and is predominantly male.
Despite accounting for less than 10% of the total population, this income group holds two-thirds of vehicle asset finance (VAF) loans and three-quarters of home loans by value.
“The segment is diverse in income, with some members just above middle-class earnings, while others receive multi-million-rand salaries,” said Eighty20.
“For this analysis, a monthly salary of R42,100 was used. In this example of a typical Heavy Hitter, debt repayments by median calculation account for 66% of net income, with two-thirds of their debt secured.”
The Middle-Class Workers
This segment is predominantly made up of married couples looking for a middle-class lifestyle, who often juggle car and home loans with their child’s education costs.
Many of these households are dual-income with substantial debt repayments.
This group holds roughly 30% of all home and vehicle asset finance (VAF) loans in South Africa but accounts for only 20% of the total loan value.
“On average, middle-class Workers allocate about 56% of their net income (income after tax) to debt repayments.”
“However, in a typical scenario illustrated below, the median instalment-to-income ratio is closer to 53%.”
The Mass Credit Market
The Mass Credit Market segment consists primarily of South Africans earning less than R10,000 per month and mostly women working as entry-level nurses, teachers, and administrative staff.
Roughly 80% of this group holds retail store accounts, while the other 17% have credit cards.
Household income is usually twice one personal income, with nearly a quarter receiving grants and almost half being single parents.
“In our example, an individual in this segment, earning a gross monthly income of R4,900 per month, falling below the tax threshold, has debt instalments totalling R782 per month—mostly retail store card debt,” said Eighty20
“The median instalment-to-income ratio for this segment is approximately 16%, whereas the average ratio is around 30%.”
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