South Africa’s middle class nightmare

South Africa’s middle class is proving more difficult than ever to break into, as rising costs of living and a stagnant economy have made social mobility increasingly challenging. 

This is feedback from a study conducted by the UCT Liberty Institute of Strategic Marketing, commissioned by Standard Bank and Liberty, to analyse the spending power of various income segments. 

The study revealed that South Africa’s working class is now the fastest-growing segment in the country, as millions of households have moved up from poverty or the working poor. 

However, moving from the working class into the middle class has become significantly more challenging. 

The study showed that around 1.2 million households have joined the working class in the past decade. This segment is defined as households earning between R8,000 and R22,000 per month.

These households, representing a quarter of South Africa’s population, primarily consist of individuals with some tertiary education. 

Despite dual incomes for some, their earnings remain below R22,000. Low economic growth, high debt, and limited resources hinder upward mobility.

“Formal education has helped many move towards the middle class, but the working class faces a highly unstable journey,” the executive head of the middle market at Standard Bank Motlatsi Mkalala said. 

“Retrenchments, short-term work contracts, or a breadwinner’s death can quickly push households back into poverty.” 

Despite a combined annual spending power of R550 billion and 300 new working-class households emerging daily, per capita spending remains low. 

Many support extended families and spend more on essentials like food as inflation remains high, Mkalala explained. 

Commuting is also a heavy burden for working-class households, with many spending an average of two hours daily on travel. For some, this time has doubled, as have their transport costs.

To cope, many turn to debt. As a result, only 34% of working-class consumers surveyed feel financially stable, compared to 69% of middle-class earners.

The results of the study can be seen in the table below, courtesy of Standard Bank. 

Middle class hanging on by a thread

Despite the desire of many to be in the middle class, many of those households are also under immense financial pressure. 

Data from Standard Bank shows that nearly half of South Africans who earn a salary are left with less than R1,000 or have negative balances by payday. 

Middle-income earners make up the largest proportion of these individuals. 

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.

More affluent 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.