Middle-class South Africans take a R7,000 per month hit
Middle-class South Africans have unsustainable levels of debt and are currently spending, on average, R7,000 per month on retail accounts, unsecured credit, and other types such as bonds or vehicle finance.
This is according to consumer analytics and research firm Eighty20, which aggregates its data from 42 million adult South Africans representing over R3.7 trillion in earnings per annum.
Defining who qualifies as ‘middle class’ is a challenging task in South Africa, given the significant disparity between the country’s economic classes.
Several sources noted that South Africa’s middle class earns anywhere from R8,000 to 29,000 per month.
In its latest report on consumer confidence, the Bureau for Economic Research (BER) defines a middle-income household as one with earnings between R5,000 and R20,000 per month.
According to Discovery Bank’s SpendTrend 2024 report, mass affluent (middle-income) individuals earn between R100,000 and R350,000 a year, slightly exceeding the BER’s range.
On the other hand, Eighty20 defines middle-class workers as households with an income of nearly R25,000 a month and a personal income of R16,000.
The firm’s latest data notes that this category includes 4.1 million income-earning, credit-active people with families, mortgages, and frequent shopping trips.
Eighty20 highlighted these South Africans, who take home roughly R14,400 per month after tax, as having unsustainable levels of debt in the second quarter of 2024.
According to the company, their group holds around 30% of all home and vehicle asset finance (VAF) loans in South Africa, despite representing only 20% of the total loan value.
On average, middle-class workers allocate approximately 56% of their net income (income after tax) to debt repayments.
However, in a typical scenario as shown below, the median installment-to-income ratio is closer to 53%.
Eighty20 highlighted that middle-income households spend R7,000 on retail accounts, unsecured credit, and other forms of debt such as home loans and vehicle finance.
Unsecured debt is debt created without any collateral promised to the creditor. Many lenders note that this tends to be credit card debt and personal loans used to make ends meet every month.
Standard Bank advises that if your ratio is higher than 43%, you should consider strategies to reduce debt.
Benay Sager from DebtBusters is more circumspect.
“In our experience, if debt repayment to net income ratio is over 30%, the consumer is in the danger zone; if over 40%, then their financial situation is not sustainable, regardless of the type of debt they are repaying”.
Considering these thresholds, at 53%, middle-class South Africans are considered to have unsustainable levels of debt.
Eighty20 stressed that while there may be some data or modelling inaccuracies inflating these figures to some degree, it’s unlikely they would reduce to healthy levels.
Looking at the reasons for this trend of unsustainable debt levels, the firm pointed to higher borrowing costs, high cost of living, and stagnant and generally low salary growth over recent years.
DebtBusters reasoning aligned with those mentioned by Eighty20.
It noted that persistently high interest rates and inflation—especially food inflation—continue to erode consumers’ disposable income, while a lack of meaningful economic growth is constraining salaries.
Concerningly, DebtBusters also added that young individuals within this earning bracket feel stuck.
“They may be more motivated and adaptable and have better trust levels and financial knowledge than their parents, but they face other stresses.
“These include limited job opportunities, higher relative startup costs and a sense of demotivation regarding their prospects in South Africa,” it said.
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