Big trouble for South Africans earning more than R400,000 a year

A recent study shows that while upper-middle-income South Africans who earn more than R420,000 have a more stable income, they are heavily indebted.

The study was conducted by DebtBusters, South Africa’s largest debt management company, using data provided by clients.

The study analysed five income brackets, which included South Africans who earn under R5,000 a month, between R5,000 and R10,000, R10,000 and R20,000, R20,000 and R35,000 and more than R35,000.

Across these income levels, DebtBuster highlighted that, on average, South African consumers spend 68% of take-home pay to service debt.

Concerningly, Debtbusters quarterly report for Q4 2024 showed that those earning more than R35,000 a month or R420,000 a year are heavily in debt.

It noted these income earners have a total debt to annual net income ratio of 187%, and they need 74% of their take-home pay every month to service their debt repayments.

This is higher than any other income bracket, with those taking home between R240,000 and R420,000 or R20,000 to R35,000 being second with a ratio of 137%.

Debtbuster said that the indebtedness of those searching for more than R420,000 a year was predominantly due to home loans and vehicle asset finance debt.

Executive head of DebtBusters Benay Sager noted that the study also provides interesting insights into how South Africans in different income bands prioritise their spending outside of debt repayments.

When debt is excluded and spending on other items is considered, the report noted these income earners have more stable budgets with the least fluctuation over the past three years, but they also fork out the most towards medical aid.

Looking at the other income brackets, DebtBusters noted that expenses such as transport and electricity are consistent, but accommodation differs significantly.

“There is surprisingly consistent spending across all income groups on transport, utilities, and cellphone contracts, but spending on accommodation differs significantly.

“Excluding debt repayments, people taking home less than R5,000 spend 9% while those earning between R10,000 and R20,000 allocate 31% for housing, more than any other income band,” it said.

Grocery spending also differs markedly. Households with less take-home pay spend a greater proportion on food.

The lowest earners spend more than half of their non-debt-repayment disposable income on groceries. This proportion declines across the income bands. For top earners, the comparable ratio is just under a quarter (23%).

Unsurprisingly, spending on insurance, including medical aid, is negligible in the two lower income bands but increases from 1% in the R10,000 to R20,000 band to 13% amongst top earners.

Higher electricity costs and food inflation have forced people in the lowest income band to pool their resources more effectively to cut back on housing expenses.

Over the past three years, the proportion of non-debt-repayment take-home pay these consumers spend on accommodation has halved from 20% to 9%.

This contrasts with people taking home between R10,000 and R20,000, the backbone of the country’s working population.

Excluding debt repayments, they spend 31% of their take-home pay on housing, an increase of 7% in three years. To make ends meet, they cut back on groceries and spend more on their children.

DebtBusters noted that over the past decade or so, inflation has shot up 144%, petrol prices by 172%, and Eskom’s electricity tariffs by 235%.

Salaries, meanwhile, haven’t even doubled, sitting at 98% over the same period for most all income brackets, which is an unsustainable situation.

“Unsurprisingly, but worryingly, spending on retirement is all but non-existent for the lower income brackets,” added Sager.

“Only the top two income bands allocate some money to retirement savings, which is another major concern.

“This shows that with the recent changes made to the so-called two-pot retirement system, there is much work to be done to educate South Africans about long-term savings,” he said.