R21,700 per month blow to rich South Africans
Wealthy South Africans have the highest levels of debt and are currently spending, on average, R21,700 per month on home loans, vehicle finance, credit, and other forms of debt.
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.
The wealthiest 5% of the population possesses more assets than any other segment.
Their current debt load is more than three times that of the middle-class workers segment.
According to Eighty20, these individuals are classified as Heavy Hitters.
They have the highest incomes of any segment and, as a result, need to be divided into seven sub-segments with an average monthly income ranging from R30,000 to more than R120,000.
Many affluent individuals bought assets on credit when interest rates were low.
However, with interest rates rising and high inflation, lower to middle-income groups are starting to feel significant financial strain.
According to the firm’s latest data, this group, which includes large families and represents less than 10% of the population, holds two-thirds of vehicle asset finance (VAF) loans and three-quarters of home loans by value.
Eighty20 highlighted that these South Africans, with a take-home pay of about R42,100 after tax, have unsustainable levels of debt in the second quarter of 2024.
The company noted that this 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.
For a typical affluent individual, debt repayments account for 66% of net income, with two-thirds of their debt secured.
Eighty20 pointed out that households in this group spend R21,700 on home loans and vehicle asset finance.
This also includes unsecured debt, which 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 cover monthly expenses.
Standard Bank advises that if your debt-to-income ratio is higher than 43%, you should consider strategies to reduce your debt.
Benay Sager from DebtBusters is more cautious.
“In our experience, if the ratio of debt repayment to net income is over 30%, the consumer is in the danger zone. If it’s over 40%, then their financial situation is not sustainable, regardless of the type of debt they are repaying.”
According to these thresholds, when the ratio is at 66%, wealthy South Africans are considered to have unsustainable levels of debt.
The firm attributes this trend of unsustainable debt levels to higher borrowing costs, a high cost of living, and stagnant and generally low salary growth over recent years.
What’s worse, DebtBuster mentioned that people in this income bracket have the highest number of individuals who believe they don’t need debt counselling—over 73% of them, to be exact.
The research clearly shows that older people with higher incomes are under the most pressure to repay debt, yet they are the most resistant to seeking help.
Additionally, Standard Bank has warned 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.
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