Alarming trend emerging for South Africans who earn more than R35,000 per month

In the third quarter of 2024, a concerning financial trend has emerged among South Africans earning over R35,000 per month.

According to DebtBusters’ Debt Index, while the broader economic landscape has seen positive developments, many high-income earners are still struggling to manage their debt.

Debt counselling inquiries increased by 6%, and online debt management services saw a 10% rise compared to the same period last year.

Despite improvements such as reduced inflation, the first interest rate cut in years, access to retirement funds through the two-pot retirement system, the absence of load shedding, and a new coalition government, income growth has failed to keep pace with rising expenses.

Consumers applying for debt counselling in this period allocated an alarming 66% of their take-home pay to servicing debt.

This proportion marks a significant increase from previous quarters and is the highest debt-service ratio recorded since 2017.

Personal loans have become a critical financial resource, with 82% of these consumers holding at least one.

Additionally, 53% of individuals reported reliance on one-month payday loans, highlighting a dependence on short-term unsecured credit to cover day-to-day expenses.

While the debt-to-annual net income ratio has improved for most income groups, high-income earners are notably excluded from this trend.

For South Africans taking home R35,000 or more per month, the debt-to-income ratio has reached a staggering 176%, with 72% of their take-home pay required to cover debt repayments.

This group’s financial obligations are predominantly asset-based, with home loans accounting for 42% of their debt. Vehicle asset financing makes up 22%, while unsecured debts contribute 37%.

This indicates that even among high earners, unsecured credit continues to play a significant role in their financial portfolios.

Further compounding this issue is a lack of financial resilience among many high-income earners.

Data from Standard Bank paints a troubling picture: an estimated 29% of these individuals lack any form of emergency savings.

Of those who do have savings, half possess less than one month’s salary in accessible cash.

This precarious position leaves nearly one in three high earners vulnerable to financial crises, as even a single unexpected expense could push them into deeper financial distress.

Standard Bank’s Head of Money Management and Advisory, Doret Jooste, underscored the gravity of the situation.

Jooste explained that this issue affects a broad spectrum of high earners, with gross salaries ranging between R25,000 and R80,000 per month.

She emphasised that both ends of this earning range face similar financial challenges.

According to Jooste, approximately one-third of these clients lack emergency savings entirely, and another half have insufficient savings to cover even one month’s expenses.

This combination of high debt levels and insufficient savings paints a worrying picture for South Africa’s middle-to-upper-income earners.

Despite their substantial earnings, the financial strain caused by debt obligations and a lack of safety nets leaves many in a precarious position.

While economic improvements such as lower inflation and interest rate cuts offer some relief, the underlying challenge of inadequate income growth relative to expenses remains a critical issue.

These trends highlight the need for greater financial planning and debt management among high-income earners.

Without significant changes in spending habits or debt strategies, many individuals in this group risk falling into financial instability.

As debt levels continue to rise and savings remain insufficient, it is evident that earning a high income does not guarantee financial security.

Read: More relief coming for households in South Africa this month