South Africa’s middle class hanging on by a thread

Nearly half of South Africans who earn a salary are left with less than R1,000 or have negative balances by payday, with middle-income earners making up the largest percentage. 

Standard Bank analysed data from over 402,000 individuals who receive their salaries on popular payment dates, including mid-month, the 25th, and month-end. 

The day before payday, 21% had R1,000 or less, while 28% had negative balances or were using overdrafts. Only half had more than R1,000 in their accounts.

This indicates just how much pressure South African consumers are under, with elevated interest rates and a rising cost of living eroding their disposable income. 

Richer South Africans have not been spared, with emerging middle-income earners being the highest percentage of customers with less than R1,000 or in the red. 

Private banking customers aren’t exempt either, with one in ten customers having a negative balance before payday.

Kabelo Makeke, Head of Personal & Private Banking at Standard Bank South Africa, noted that this data also indicates a lack of financial resilience. 

It primarily shows that South Africans are unable to maintain their lifestyles without turning to credit or overdraft facilities. 

Makeke said South Africans are struggling to close the salary-lifestyle gap because they spend large portions of monthly income early in the month, leaving little to cover unexpected expenses.

“The challenge of balancing income with lifestyle appears to increase as earnings rise, with more individuals falling into the trap of lifestyle inflation,” Makeke said.

Although high-income earners often enjoy greater disposable income, Standard Bank’s findings show they are also more susceptible to negative balances.

This is primarily due to lifestyle inflation, a phenomenon where rising incomes lead to higher spending that often outpaces earnings.

“As incomes rise, it’s easy to fall into the trap of spending more, which can create a cycle of debt. However, breaking this cycle is possible,” Makeke explained.

To fill the widening salary-lifestyle gap, many South Africans are turning to credit cards or overdrafts. 

Reserve Bank data shows that demand for credit cards has boomed over the past two years, and banks are increasingly willing to increase supply. 

The Reserve Bank said households likely relied more on credit card advances to cover their monthly expenses, as this was the only category to maintain robust growth in the first seven months of 2024. 

Credit card growth year-on-year has fluctuated between 9.2% in January and 10.6% in July. 

Household debt as a share of disposable income has risen consistently over the past two years, now eating up 10% of total income. 

This is only set to get worse as credit card growth remains strong as consumers turn to debt to maintain their lifestyles amid rising prices. 

Household debt as a share of nominal disposable income hit 62.2% in the second quarter of 2024, a slight decline from the first quarter. 

In absolute terms, South Africans have over R2.35 trillion in debt, and a third of all credit-active consumers have missed more than three monthly repayments. 

This indicates that consumers are taking more debt than they can pay off and are increasingly relying on credit to purchase basic necessities. 

The Reserve Bank’s data supports this, with debt-servicing costs making up 9.2% of disposable income. 

Debt repayments can crowd out spending on goods and services, which will translate into poor economic growth as a significant portion of South Africa’s GDP comes from household consumption. 

The Reserve Bank’s data showed that this is already happening. Spending on personal transport equipment declined, while expenditure on computers, entertainment, and other durable goods has slowed so far this year.