’94.5% of South African households earn negative net incomes’
When a household’s expenses exceed their after-tax income, they are earning what we call a negative net income. Standard Bank recently released a report showing that a shocking 94.5% of South African households earn negative net incomes. Their findings revealed that the poorest income groups suffer the biggest shortfall in income.
‘Households spend most of their income on contributions, i.e. debt instalments’
What do households spend their income on?
Households in general spend most of their income on contributions, i.e. debt instalments, insurance and medical aid. They then spend about 20% of their net income on food and beverages, which is their second biggest expense.
Another big expense is transport, which they spend around 15% of their net income on. Surprisingly, they only spend 3% on education. Additionally, they spend on electricity, communication– i.e. cell phone airtime and data, and clothing and footwear.
How much do the poor have left after basic expenses?
18% of the population are a part of low-income households, earning R 0 – R1, 500 monthly. While 4% earn R1, 500 – R7, 000 a month. The remaining 60% earn monthly salaries above R7, 000.
The lowest income group only has a monthly after-tax income of a meagre R680. Alarmingly, their average monthly expenditure amounts to almost R4, 000 monthly. This may mean they are under-reporting their income.
‘These households are taking out credit to fund their consumption’
How do the poor get by?
However, it’s believed that the poor also rely on wealthier relatives to supplement their income. To a greater extent, these households are taking out credit to fund their consumption and basic living expenses.
They spend 59% of their income on non-durables –petrol, food, cleaning products, clothing etc. Food alone comprises 33% of total expenditure – which exceeds their income. These households struggle a great deal and it’s impossible for them to save.
The same applies for middle-income households who are also barely making ends meet. They too earn a negative net income. At the end of the day, 95% of the population are struggling financially.
Who is actually able to save?
The only income groups that are actually able to save every month are the 5.5% in the three highest income groups.
The disposable incomes that low income households earn are already incredibly low, even before expenses are subtracted, Standard Bank noted.
Household affordability and savings patterns were calculated using a simple equation that compares expenditure to net income.
Based on their calculations, Standard Bank concluded that most of the population are possible non-savers. Low income groups –earning an income lower than R86, 000 per year have a highly negative income. While middle income groups –earning R86, 000 – R688, 000 yearly have a marginally negative net income.
‘Affluent households can potentially save as much as 65%’
What do the higher income groups earn?
Emerging affluent households– earning between R1, 481,001 and R2, 360,000 yearly can possibly save 19% of their income after tax, the bank found.
While affluent households – earning R2,360,001 and more per annum can potentially save as much as 65% of their income after tax.
“This group also has the highest positive net income balance compared to any other income group. Their savings potential is equivalent to 65.6% of their after tax incomes,” the bank said.
This means the affluent can save a whopping 50% more than the emerging affluent. Moreover, the affluent can save 61% more than the upper middle income group – earning between R688, 001 and R1, 481,000 per year.