South Africa’s middle class is in serious financial trouble – here’s who is struggling most

Data from debt management firm DebtBusters shows that South Africans have 31% less disposable income than six years ago, as a result of the average net income remaining flat while inflation soars.

The group’s Debt Index for the first quarter of 2022 showed that two years after the start of the coronavirus pandemic, nominal income has declined marginally. But, when the effect of cumulative inflation over the past six years is considered, in real terms South Africans have 31% less disposable income.

According to Benay Sager, head of DebtBusters, consumers are making up the shortfall in real income by borrowing. Worse still, in the first quarter of 2022, enquiries about debt counselling increased by 32% compared to last year.

Unsecured debt levels are 20% higher than in 2016 and for those taking home more than R20,000 a month unsecured debt has increased by 54%, which is unsustainably high.

The consequence of this higher debt burden is that consumers need to spend about 62% of their take-home pay to service their debt.

More alarming is that for the top two income bands debt-to-income ratios are at their highest levels in the past six years. For those taking home more than R10,000 per month the ratio is 125% and it is 150% for those with take-home income of R20,000 or more per month.

According to DebtBusters and National Credi Regulator (NCR) data, the average unsecured loan size grew by 27% whereas the number of new unsecured loans shrank by 13% in the last four years.

This indicated that an ever-smaller pool of consumers are receiving unsecured loans, stressed DebtBusters.

While the average new applicant age has been consistent, the share of applicants who are 45 or older has increased from 19% to 24% over the past six years, indicating financial stress is becoming more prevalent in this age category, said Sager.

What people owe money on

The Debt Index showed that the nature of debt is mostly stable, except a growing portion is from financed vehicles. In the last few years, vehicle debt has increased, indicating that more consumers with assets, vehicles in particular, are seeking financial assistance, said Debt Rescue.

Banks make up exactly two-thirds (66%) of debt, while there has been a slight increase (7%) in the share of unsecured debt over the past year.

Read: One of South Africa’s biggest banks is making a permanent shift in how it does business

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South Africa’s middle class is in serious financial trouble – here’s who is struggling most