Big difference in how rich and poor South Africans spend their money

South Africans spend nearly half their disposable income on groceries, medical aid, and housing, with only 7% allocated towards retirement savings. 

However, spending habits vary greatly across income segments. Poorer South Africans spend more of their income on leisure and clothing than their rich counterparts, who allocate more to savings and investments. 

FNB revealed this at the launch of its annual Retirement Insights Survey, which leveraged information from its 12 million clients to understand why so few South Africans save for retirement. 

The predominant reason is that many simply have no money left over after spending on basic necessities to save, said senior economist Siphamandla Mkhwanazi. 

South Africa has experienced elevated inflation over the past few years, with the cost of food, fuel, and housing rising the most and remaining sticky. 

This has put pressure on consumers, with many choosing to skip insurance premium payments and retirement fund contributions to get by. 

Some have also chosen to take on more debt through credit cards and personal loans to maintain their lifestyles. 

Mkhwanazi said spending on everyday essentials, from food to housing, disproportionately burdens low-income earners. 

As income rises, the proportion allocated to essential items shrinks. This frees up more income for discretionary spending on entertainment, eating out, and travel. 

While this is what would be typically expected, FNB’s data showed that the inverse is true in some cases. 

For example, members of its lower-income Entry Wallet segment spend 9% of their income on clothing and consumables compared to only 7% for the Wealth segment. 

This impacts their ability to save and invest negatively, with Entry Wallet respondents saving only 2% of their income for retirement and a further 5% for general savings. 

In contrast, wealthy respondents said they save 12% of their income on retirement and a further 10% for general savings and investments. 

These differences in spending are shown in the graphic below. 

FNB’s data from its 12 million clients produced results similar to those of Discovery Bank and Visa released earlier this year. 

Their data showed that spending on groceries rose 8% in 2023 due to high food inflation of 12% over the past year. 

It also showed that inflation has had a far bigger impact on poorer South Africans, who have to adjust their spending habits to afford basic necessities. 

This has resulted in a shift in spending behaviour, with poorer South Africans substituting spending on luxuries, such as travel, for necessities, such as food and household goods. 

On the other hand, wealthier South Africans are more immune to high inflation as they are able to absorb higher food costs without having to substitute or cut spending in other areas. 

Thus, they tend to spend more money on travelling internationally and within South Africa, as well as spending more in retail stores outside of groceries. 

Interestingly, spending on eating out at restaurants or takeaways makes up a similar proportion of spending across all income categories. 

Spending on eating out and takeout also increased in the last year by 8%, following a 28% surge the year before, driven by post-pandemic recovery. 

Furthermore, more of their disposable income is taken up by debt repayments, as many have turned to credit cards to maintain their lifestyles.

The spending habits of South Africans according to Discovery Bank and Visa are shown in the graph below.