South Africa’s working class is now the fastest-growing segment of the population, with millions of households moving up from poverty or the working poor.

However, breaking into the middle class has become increasingly difficult.

A recent study by the UCT Liberty Institute of Strategic Marketing, commissioned by Liberty and Standard Bank, reveals that 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, which represent a quarter of South Africa’s population, are largely made up of individuals with some tertiary education. Despite having dual incomes in some cases, their earnings still fall below R22,000.

Low economic growth, high debt, and limited resources impede their upward mobility, the lender said.

“Formal education has helped many move towards the middle class, but the working class faces a highly unstable journey. Retrenchments, short-term work contracts, or the death of a breadwinner can quickly push households back into poverty,” said Motlatsi Mkalala, executive head of middle market at Standard Bank.

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

Many working-class families support extended family members and spend more on essentials such as food as inflation continues to rise.

Commuting is also a heavy burden, with many spending an average of two hours daily traveling to work. For some, both travel time and transport costs have doubled.

To cope with these financial pressures, many are turning to debt. As a result, only 34% of working-class consumers surveyed feel financially stable, compared to 69% of middle-class earners.

“These challenges highlight the need for accessible tools that provide real-time insights into spending habits and help the working class make informed financial decisions daily,” said Mkalala.

Standard Bank’s data showed that almost half of salaried South Africans are left with less than R1,000 or face negative balances by payday. Middle-income earners make up the largest group affected.

The bank analysed data from over 402,000 individuals who receive their salaries on typical pay dates. On the day before payday, 21% of individuals had less than R1,000 in their accounts, while 28% had negative balances or relied on overdrafts.

Only half of the individuals had more than R1,000 in their accounts.

Even higher-earning South Africans are feeling the pressure, with emerging middle-income earners being the highest proportion of customers with less than R1,000 or in overdraft.

Standard Bank said that the research underscores the need for sustainable credit solutions to protect this segment from exploitative lending.

Debtbusters’ Q4 2024 Debt Index found that in 2024, consumers remained proactive in managing their credit, with debt counselling inquiries up by 8% and online debt management rising by 9%.

While interest in debt counselling was somewhat muted compared to previous years, demand is expected to increase in 2025 as consumers strive for financial sustainability.

Despite improved financial confidence, some trends persist. Income growth, though better than in previous years, still lags behind rising expenses: electricity tariffs have increased by 135%, petrol by 72%, and inflation by 44% since 2016.

As a result, consumers seeking debt counselling in Q4 2024 used 68% of their take-home pay to service debt.

A large portion of these individuals had personal loans (82%) and payday loans (52%), relying on short-term credit to supplement income.

Key findings for Q4 2024 debt counselling consumers:

-Purchasing power: Real incomes have effectively decreased by 42% since 2016, factoring in inflation. However, those earning R35k+ p.m. saw a 10% nominal increase in income.
-Debt burden: On average, consumers spent 68% of their income on debt service, the highest since 2017. For those earning R35k+, this rose to 74%. -Vulnerable consumers earning R5k or less spent 75% of their income on debt.
Unsecured debt: Unsecured debt levels were 29% higher than in 2016, with those earning R35k+ p.m. carrying 60% more unsecured debt.

Since 2016, average unsecured loan size increased by 29% whereas the volume of new unsecured loans declined by 27%.

This means larger unsecured (personal) loans are being granted to a smaller number of consumers, highlighting that risk is being concentrated on an ever-smaller group of consumers, BebtBusters noted.