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South Africans try to pay off debt as cash crunch continues

25 September 2014 Michael Rubenstein, BankservAfrica

The average South African's disposable income has declined for the first time since January, while de-population of the ranks of the lower middle class continued over the past three months. This is according to the latest BankservAfrica Disposable Salary Index (BDSI).

According to Michael Rubenstein, head of corporate reputation at BankservAfrica, 2014 has had two negative months of take-home pay so far.

The average disposable salary came in at R12 224 in August. While slightly lower than July, it remains 6.1% up on a year ago.

With inflation at 6.4% in August, Rubenstein says the actual salaries are weaker after the catch-up of pay increases from general government and state-owned enterprises. "The BDSI shows that real salary increases are once again becoming constrained."

Tighten the belts even more

Mike Schüssler, chief economist at economists.co.za, says the BDSI indicates retail sales may in the next month or two, be lower than July.

"The formal sector employee is less likely to afford as many or as expensive new cars as before. Wages may be increasing, but are not going to increase at the same rate as before," he says.

According to Schüssler, the total value of salaries (including pensions and ultra-high income individuals) saw an increase of just over 7% to R44.8 billion.

"This, along with credit data, suggests that South Africans are not increasing their debt levels and are rather concentrating on paying the debt back. Confidence in low interest rates is also probably declining. In addition, the financial sector has become more careful in granting loans to the lower end of the market."

More people get more, but fewer blue-collar salaries

The number of people receiving between R50 000 and R100 000 in disposable income per month, grew by 24.5% year-on-year. The next highest category (between R25 000 and R50 000) grew by over 18%.

Those receiving less than R4 000 in their bank account grew by 10.8%, but the largest category, those earning between R4 000 and R 10 000, again declined by nearly 2.5% year-on-year.

Schüssler says an interesting fact is that the number of people earning between R4 000 and R10 000 per month now makes up 42.6% of the total, while those earning between R10 000 and R25 000 currently makes up 35.3% of the sample in the BDSI.

The category of those who earn between R25 000 and R50 000 is estimated to be 8.1%. Those taking home over R50 000 and up to R100 000 make up 1.5% of the total BDSI.

The lowest income category, namely those earning below R4 000, now reflects just over 13% of the estimated number of people in the BDSI. This means that more than 55% of South Africa's working population, as reflected by the BDSI, earn less than R10 000 per month.

"More people are earning higher salaries, while the bottom end of the middle class – those earning between R4 000 and 10 000, is de-populating. It is also quite clear that the growth in the number of accounts receiving over R10 000 is growing in double digits."

Although the BDSI does not include individuals earning over R100 000, it is interesting to note that this category has grown by 27.2% in August, year-on-year. This category has now seen growth of over 37% for the first eight months of 2014, over the same eight months of 2013.

"The trend of more people entering the higher income brackets is partly due to above-inflation increases within these categories," Schüssler explains.

An interesting trend

A trend that needs further investigation over the next year is the decline in the number of employees earning between R4 000 and R10 000 as take-home pay, while categories above and below this range continue to see actual growth.

"However, the fact that the category including those with a take-home salary of over R10 000 has grown from 34% to 44% in less than two years must be an indication of wealth creation in the South African formal sector," Schüssler concluded.

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