What is the SA middle class’s mood going into the holiday season?

As we head into the holiday season, the big question for retailers and brands is whether there is light at the end of the somewhat dark economic tunnel.

Answering that question requires knowledge of what’s going on in the hearts, minds and bank balances of consumers. And right now, alarm bells are ringing out over rising debt, cost of living, and the financial constraints that the South African middle class is facing. 

Income growth, the story goes, is outpaced by significant cost increases and consumers resorting to credit and loans to make up the shortfall. There are also media reports that the major banks are recording an increase in the number of their clients living pay cheque to pay cheque.

However this doesn’t necessarily mean that most of the country’s formally employed income earners are feeling pessimistic about their finances, says Brandon de Kock, director of Storytelling at BrandMapp.

BrandMapp is consumer insights consultancy WhyFive’s annual survey of South Africans living in households with a monthly income of R10,000 or more.

“Our research, which measures what’s going on in the lives of the 13-million South African adults living in taxpayer households, gives us the deepest, widest view of this critical segment, and a true understanding of where things are at requires one to separate the baby from the bathwater.”

Consider, for example, the levels of debt stress these consumers have expressed over the past four years. The percentage of people saying they have no debts, or are not at all worried, has shrunk from 60% to 51% in the past four years, with the biggest jump in 2023.

However, the story isn’t all bleak. When you look at the BrandMapp audience, fewer than 30% are debt-stressed, and that number drops to just 13% for households earning R1m or more a year. More importantly, 51% of all consumer-class adults are either debt-free or not at all concerned about their debt.

Age dynamics also play a role. Gen Z and Boomers stand out as the least debt-stressed, with about 45% having no debt at all, while 35- to 55-year-olds bear the brunt of debt stress, with 35% in this cohort feeling burdened by its weight.

“The reality is that more highly educated, employed adults know how to deal with debt and use it as a tool to achieve their preferred lifestyle rather than a necessity. Yes, new-to-category consumers are borrowing themselves into a lifestyle, but the data indicates that it’s a minority, not the majority,” says De Kock.

So, what keeps SA’s mid to top earners awake at night?

Financial concerns loom large, but they are not the sole worry for SA’s middle class. “BrandMapp 2023 shows that 47% of adults say that the thought of ‘rising food and energy costs’ keeps them awake at night. Other stressors include weak economic growth for 40% of the BrandMapp audience but they are still more concerned with crime and corruption than either of those,” says De Kock. 

Despite these challenges, resilience shines through. “Almost 60% of SA’s consumer class say they are the same [as] or better off than they were two years ago, with only 15% saying they are much worse off.”

Encouragingly, SA’s high-income earners are growing at twice the rate of inflation, while the millionaire class — those earning R1m or more annually — is expanding at a staggering rate of 20% or more.

“This isn’t just about the rich getting richer,” says De Kock. “There’s a rapidly growing economic elite forming at the top of the country’s income pyramid. It means the tax burden on the super-wealthy is getting better, not worse, and if we can turn things around on a macroeconomic level, a highly skilled, educated and motivated group is ready to pull the country into a brighter future.”

Shifts in spending behaviours

Financial constraints are reshaping spending patterns, though not uniformly. “At the middle and bottom of the income pyramid, consumers are driven by survival and don’t have much choice,” says De Kock, “But the higher up the tree you go, the more choice consumers have. This indicates that discretionary spending, such as dining out or purchasing new cars, is being postponed rather than abandoned.”

Interestingly, aspirations remain steady with 37% of adults wanting to buy or change their car this year, while 22% are looking to buy a house, and that’s only a slight drop from 28% three years ago.

“Affordability is an issue, but I think this also reflects increasing numbers of incoming-earning younger adults, the ‘subscription generation’, who see things such as home loans as anchors tying them down rather than steps up the ladder. And they’re also living in a new consumer world with novel behaviour influences, so there’s a growing trend towards staying at home more, fuelled by streaming services and home delivery options that continue to transform consumer behaviour,” says De Kock.

Attitudes towards wealth and resilience

Facing economic uncertainty and the soaring cost of living, SA’s middle class remains cautious and measured in their approach to wealth-building.

When asked how they describe their attitude towards investments, only 28% of the BrandMapp audience say they are “bold”, 41% are “conservative”, and the rest are unsure.

“This conservatism indicates a ‘treading water’ sentiment, particularly among higher-income groups who can afford to play the long game,” says De Kock.

A tale of two economies

SA’s financial landscape reveals stark contrasts. “We’re seeing the ongoing expansion of a stratified society, and we need to be concerned about the plight of the ever-expanding number of individuals who sit in the 70% of adults in the country and live in a world of limited choice below the taxpaying threshold,” says De Kock.

“But, at the same time, we shouldn’t lose sight of the fact that the group of consumers who do have a choice is growing at the same pace, and the group at the very top is growing faster than anything else. It is not a tiny elite — about 5- or 6-million adults who live in a country within a country, one full of dreams that can be reached.”

It’s a story about evolution, not revolution, he says.

“And it’s one that we have specialised in understanding for the past 11 years. I can’t wait to see what the new BrandMapp data that’s about to be released will show us. But if you take rising levels of consumer optimism into account, I believe it’s going to be another chapter with a happy ending.”

Get the consumer insights you need to make informed decisions

BrandMapp 2023 insights are now available directly from the BrandMapp team at WhyFive Insights and by subscription via Telmar, Softcopy, Nielsen and Eighty20. For data access, email Julie-anne@whyfive.co.za.

Visit the WhyFive website for an overview of what’s in the new data.

This article was paid for by BrandMapp.