Even wealthy South Africans are living paycheque to paycheque

Most South Africans are living paycheque to paycheque—and even high-earning South Africans are now one emergency away from financial distress.

According to Standard Bank, which looked at data from over 400,000 people, 21% of their clients had R1,000 rand or less by the time payday arrived.

Worse yet, 28% of them were in overdraft come payday.

This means that nearly half of their clients who earn a salary are left either in overdraft or with less than R1,000 in their account by the time payday arrives.

According to Kabelo Makeke, Head of Personal & Private Banking at Standard Bank South Africa, who spoke on the Money Show with Stephen Grootes – these numbers are unsurprising.

“I wasn’t really that surprised,” Makeke said. “I think the numbers just confirmed what we always suspected.”

Makeke explained that there are a number of reasons for this problem.

While many people simply do not have (or do not stick to) a budget, others are feeling the effects of lifestyle inflation.

This means that as people’s income increases, so does their spending, and as a result, their higher earnings do not translate into being more financially stable.

People do not consider putting some of their salary away for emergencies, he explained.

“That’s where I think we see a lot of people are tripping – mainly because of unplanned expenses.”

Instead, putting some of your salary, even a small amount, into an emergency fund would be much more prudent.

“Take small steps, even if you start with the 2%. Over time, it will accumulate.”

Makeke explained that this issue primarily affects lower earners.

“The difference is that the guys in private banking are actually a little bit more disciplined. They’ve got higher income.”

The “emerging middle” is experiencing a lot more pressure and is having a harder time building up their savings.

While higher earners are not exempt from this problem, they have greater access to liquidity in emergencies.

In other words, they are able to borrow more money and repay it more easily.

Makeke added that living expenses have skyrocketed, and with high interest rates and the increasing price of water and electricity – it is becoming even more difficult for consumers to break out of this cycle.

“We’re hoping with the next rate cut cycle, things will start to normalise a bit.”

“I think where people have an opportunity to reduce their debt, especially high-interest debt, that will actually give them a bit more capacity.”

While many people may feel constrained by the idea of sticking to a budget, Makeke explained that true financial freedom cannot be present while living paycheck to paycheck.

“The main thing is about freedom.”

“Freedom is about being able to live within your means as well. Just being able to say, ‘You know what, I do have some money left over at the end of the month. I can carry it through to the next month.’ That’s freedom in my mind.”

“Just living from wallet to mouth” does not give people freedom, Makeke said.

Wealthy South Africans – not much better

According to Standard Bank data, an estimated 29% of high-income South Africans do not have emergency savings.

Many of these individuals have less than one month’s salary saved in immediately accessible cash, which means they could be one expensive emergency away from financial trouble. 

Doret Jooste, Head of Money Management and Advisory at Standard Bank explained on the POWER Business podcast that these earners have a gross salary ranging between R25,000 and R80,000 per month. 

While this may be a wide range, similar findings were true for people on both ends of the high-earning spectrum.

“If we round up, about one in three of these clients don’t have emergency savings available, and then about one in two do have some level of savings available, but that is less than one month’s salary.” 

“The one thing you need to do is to have cash savings available,” Jooste said. 

“Life happens, there’s many unexpected expenses and if these things pop up and you don’t have savings access, you actually end up taking up short-term debt that can be very expensive.”

Not having emergency savings could also compromise longer-term goals, such as retirement or sending your kids to university. 

“If you don’t have cash savings available, sometimes it derails your long-term goals because now you have to divert your investments to cover these short-term expenses that pop up.”

“The rule of thumb is to have three months’ worth of your fixed expenses saved in emergency funds.”

While that may seem like an “Everest”, she said the best approach is to take things one step at a time.

“If you want to target half a month’s worth of fixed expenses, then that’s a good starting place, and you slowly start to build it over time.”

While it may be easy to discard small amounts as not worth saving, it adds up over time. 

While this group also feels the pressure of inflation and the rising cost of living – their mindset towards savings may be the real problem. 

Many people may plan to start saving once they earn more money, but Jooste pointed out that this approach clearly doesn’t work since even those earning decent salaries in South Africa aren’t saving enough money. 

“Saving and having good financial habits – it’s not just a thing that happens without a very deliberate decision. So, if you want to start making the change, you actually need to put action to it.”

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