Household expenditure, as defined by various inputs

Following our report 2019 Consumer Wallet, of 21 February which presented estimates of household (HH) expenditure by income groups, we now examine expenditure as indicated by the HH characteristics of income source, age, and level of education. We again rely on comprehensive and independent household-level data from the Bureau of Market Research (BMR).

Our key findings include: 

Expenditure by principal source of income:

Composition:

• South African (SA) households predominantly rely on salaries & wages as a primary source of income. Social grants also form an important source of income for in SA, with a 20% reliance. Overall, income diversification is generally low in SA. However, SA also has a relatively big informal economy, particularly in township and rural economies, which is arguably not completely captured in household surveys and official data.
• From a spending perspective, the labour market plays an even more important role: Households who primarily derive their income from salaries & wages account for 74% of household expenditure in SA. A further 10% of household expenditure derives from households who rely on social grants as their primary source of income.

Wallet:

• Grants are spent predominantly on food, transport and personal care and apparel. In fact, 72% of these households’ expenditure goes to essential goods and 65% to non-durable goods. Fiscal constraints and government’s under-spending are among key negative risks. This is in contrast to, for example, households’ whose main source of income is investments and spend 58% on non-essential goods.
• “The working class” (i.e. households who primarily rely on salaries and wages), accounting for 58% of the household population, spend a sizeable amount of their income on food and transport. Their expenditure is skewed towards services (42%) and non-durable goods (40%). Of which, 57% of their expenditure could be classified as essential. Weak labour markets and high fuel costs (and by extension, public transport) are among factors curtailing these households’ ability to spend.
• “Entrepreneurial” households (i.e. those relying on profits from businesses) tend to spend on transport and food. They spend the same on non-durable goods (41%) and services (40%). Further, these households together with “investors” (households whose main source of income is investments) have the highest allocation to durable goods (10% and 11% respectively, versus pensioners and workers (9% respectively). Prolonged policy uncertainty; global uncertainty and the generally uneasy business environment (impacting on corporates’ profitability and therefore their ability to pay out dividends) are among the key risks for such households.

Expenditure by age (of the head of household):

Composition:

• SA has a relatively young population, with households predominantly headed by young people with the category 35-39 of age having the highest representation (before the prime working age 40-44 or 45-49).
• The data shows that on average, consumption follows a hump-shaped pattern over the life cycle. Consumption peaks at between 35-39 years, consistent with  a large population size in that age category.
• However, consumption is biased towards households headed by the older generation. The “youth”-headed households (age 15-34) account for 21% of household population, but has only a 22% share of expenditure. This could be ascribed to lower levels of income due to relative inexperience and the country’s high youth unemployment.

Wallet:

• The 15-19 age group has the highest allocation of food expenditure (30,1%). Otherwise, food expenditure is relatively flat around 19%-20% among the working age, until the earliest retirement age (60), after which expenditure rises to around 24%.
• Expenditure on transport displays an interesting “two-humps” or two-cycle pattern across age groups. It rises with working age, peaking at age 30-34 (18%), falls and troughs at 45-49 (16,3%), rises again and peaks at age 55-59 (21.6%) and then falls again to retirement age.  This expenditure represents, in the main, purchasing of vehicles. That is, demand for vehicles predominantly comes from households headed by individuals aged 35-39 and 55-59.
• As such, expenditure on durable goods follows a very similar two-cycle pattern across age groups, peaking at ages 35-39 and 55-59.
• Unsurprisingly, the 20-24 has the highest allocation of non-essential expenditure (46%). Much of this is on entertainment and recreation (22%).

Expenditure by level of education:

Composition:

• Close to half of SA households are headed by individuals with less than secondary school education. Only 27% of households are headed by individuals with a higher education qualification. This highlights the challenge of skills shortage in SA.
• Unsurprisingly, consumption is skewed towards households with higher education, and depicts widespread consumption inequality.

Wallet:

• “Unskilled” households (i.e. no schooling and primary and secondary schooling not completed categories)  generally spend over 30% on food. In fact, these households have a very high allocation of expenditure on non-durable goods (between 55.6% and 67.1%). On average, the higher the qualification, the lower the food expenditure as a proportion of total expenditure.
• Transport expenditure is significant across education level, with households headed by “skilled” individuals (i.e. with a tertiary qualification) allocating the highest proportion, 21%. However, the breakdown of the composition is starkly different. “Unskilled” households spend more on public transport, whereas “skilled” households spend primarily on vehicles and fuel.
• “Skilled” households are the main consumers of services in SA, allocating almost half of their expenditure on services, such as domestic and educational services; as well as service charges for life assurance and pensions. A similar pattern can be observed for households “semi-skilled” (with a secondary qualification and/or matric).

Read PDF