Planning for your financial future while paying ‘Black Tax’

My money matters | Written by Moza Moyo

08 June 2018

When you get your first job, nothing is more liberating than the thought of finally getting your own salary. You think of all the things you’ll be spending your money on – things you couldn’t afford while you were studying and unemployed. Now that you’re getting paid, it should be easy to buy your favourite brands or get that car you’ve been eyeing, right? Not really. Especially if you come from a black African home, where you have the responsibility of financially taking care of your extended family.

While the concept of young black people’s provision of financial support to their families and relatives is nothing new, the obligation has become known as ‘black tax.’ It’s a complex issue that can be viewed in both negative and positive light.

In South Africa, where the fires of inequality and unemployment rage on, disproportionately scorching black Africans, ‘black tax’ places great pressure on the shoulders of young black people. “I think ‘black tax’ is an expression of the frustration that some young black people are feeling. Even when they are still studying, they’re already aware of the expectations that when they finish their studies, they’ll have to provide for their families,” explains Phumelele Ndumo, author of South African best-seller, From Debt to Riches: Steps to Financial Success, financial advisor, and founder of ThuthukaSA, a financial services company.

As young people continue to buckle under the financial pressure of splitting their salaries among several heads, the frustration that comes with ‘black tax’ is understandable. But where should that grievance be directed? “I think this issue needs to be understood in its context. We live in an unequal society. So, young black people should understand that perhaps the frustration should not be against their parents or families, but should directed at the system that still ensures that a black person earns less than a white person – on an income per capita basis. Income inequality in our country has been proven by Stats SA,” shares Phumelele.

While ‘black tax’ affects a lot of people, not everyone finds it a burden. For some black youths whose families are not well off but managed to scrape together money to give them a decent education, giving back is more a an expression of gratitude than it is a duty. “The impact of ‘black tax’ is different from one individual to another. Some young people are willing and proud that they are assisting their families.” As the Ghanaian proverb says, “The old woman looks after the child to grow its teeth and the young one, in turn, looks after the old woman when she loses her teeth,” proving that paying it forward has long been a common practice in many African communities.It Takes 5…

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No matter where you sit on the spectrum of ‘black tax,’ you can learn to manage it well and still plan for your financial future. “The less privileged you are, the more you need to empower yourself with financial knowledge,” shares Phumelele. “Speak to a financial advisor who understands you and who will assist you with making better financial decisions.”

“If you have younger siblings you’ll need to pay school fees for, start planning early and be smart about it. You can take advantage of things like tax-free investments where you can save for education over a long term.”

Speaking of saving, keeping money aside and investing is a big part of fulfilling your ‘black tax’ obligations while preparing for your financial future, says Phumelele. With many savings vehicles available at your disposal, a financial advisor can assist in choosing the one that suits your needs. “Start with savings and investments plans as soon as you can,” she advises. “Whatever amount you earn, you can afford to put away a little bit every month. I’m proud to see young people taking part in stokvels in the corporate sector or with friends. The means of saving are endless!”

Planning for retirement as early as possible is another way of breaking the cycle of ‘black tax.’ Phumelele’s advice is to “Take a retirement annuity as soon as possible.” “By the time you retire, you’ll have your children come to you for money, not the other way ‘round,” she jokes.

Disclaimer: The advice contained on this blog is for general purposes only and does not take into account individual circumstances, objectives or financial needs. Accordingly, readers are advised to seek appropriate advice from licensed professionals prior to making any investment, or taking up a financial product or service.