Just the other day I read an interesting article We Earn Millions But Lose it to Debt. The most striking point the article presents is that American workers earn on average US$ 2 million in their lifetime, but lose 27% of this income to tax and a further 20% of this amount to debt, which is roughly US$ 400,000.00! This really seemed like an awful lot and it made me wonder exactly how these numbers and percentages would apply to South Africans, if at all. So I did a bit of research online and this is what I’ve found.
According to Statistics South Africa the average South African monthly gross wage in the first quarter of 2016 was R17,517.00. The average annual income before tax then comes to R293,600.00. If we take a person’s average working lifetime, from 22 to 65 years of age, and without taking any promotions, salary increases or inflation rate adjustments into account, the total amount of money an average South African worker would expect to earn in their lifetime would be R12,624,800.00 before tax.
In the current financial year, a person’s annual income from R0 – R188,000.00 is taxed 18% and from R188,000.00 to R293,600.00 is taxed at 26%. Again, taking no annual tax adjustments into account, a person’s lifetime income of 8,084,000.00 would then be taxed at 18% and R4,540,800.00 would be taxed at 26%, with a grand total of R1,958,928.00 that would be lost to tax in a person’s lifetime. This would leave the average South African worker with a total of R10,665,872.00 earned during their lifetime. On a positive note, we are all millionaires in the making!
But if we consider the statistics according to this article in the Rand Daily Mail, that the average South African consumer and wage earner spends about 17% their after-tax income on risk protection services, 34% on household items and 49% on debt repayments each month, this means that the average South African would lose R5,226,277,28 of their life’s income to debt! At the current exchange rate, that would be roughly US$ 348,000.00 which is almost the same as the statistics provided for American workers. However, they would earn an average of US$ 2,000.000.00 in their lifetime which would be roughly R30,000,000.00 at the current exchange rate and roughly 3 times as much as their South African counterpart!
If the average South African worker were to invest 49% of their average monthly after tax income of R15,192.00, each month from the ages of 22 to 65, in a unit trust fund with an average annual rate of return of 12%, that person would actually have R104,837,249.41 (minus the tax man’s dues) to enjoy in their retirement according to this investment calculator. Even if this person were to invest 25% of their income of R15,192.00 each month for a period of 43 years they would still have R52,418,624.71 (minus the tax man’s dues) to enjoy when they retire.
These numbers certainly put monthly debt repayments into a whole new perspective for me. Does the true cost of debt really run into the millions in the course of a person’s lifetime? “Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t, pays it.” ~Albert Einstein
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