The other day, my friend and I talked about black tax, which we often talk about because…just take this cup of suffering from us already, dear Lord!
She shared that in one of her lectures in uni (she studied at a multicultural university), the lecturer asked if there were any students who often sent money back home for family support. All students from Africa and Asia raised their hands while all students from Europe and the Americas just stared in shock.
Every time I tell my friends who are not from Africa or Asia that I send part of my salary back home for extended family support, they always innocently stare at me in confusion and ask:
‘Why do you do that?’
What is black tax?
The term ‘Black Tax’ is commonly used in South Africa, where it refers to “the financial support that black professionals are expected to give their extended families.”
I first came across the black tax concept in Trevor Noah’s book Born A Crime. He writes:
“My mother calls it Black Tax because the generations who came before you have been pillaged, rather than being free to use your skills and education to move forward, you lose everything just trying to bring everyone behind you back up from zero.”
How much of your income should go towards extended family support?
Before we answer this question, let’s first dig deeper into the origin of the black tax.
What causes Black Tax and Why is it called Black Tax?
Black tax has its origins in South Africa. The apartheid policy, which governed the relations between the white minority and black majority saw the establishment of many laws that led to economic discrimination among nonwhites with black South Africans getting the raw end of the deal.
Through years of entrenched social and economic disparities, poverty among black South Africans makes it harder for them to progress financially. This led to the need for black tax which continues to date. South Africa has one of the highest levels of economic inequality in the world. Black South Africans have been victims of an economic system that continues to suppress them in several ways:
- Despite black people having degrees, unemployment among black people is at 40.7% while that of white South Africans is at 8.5%.
- The white South Africans who account for about 9% of the population own 90-95% of all the country’s assets.
- Black South Africans have to do twice as well as white people just to get the same opportunities, such as jobs.
- Black people are forced to pay higher interest rates on home and vehicle loans.
The above and more continue to cause huge economic disparity among black people.
The term black tax has since evolved worldwide to capture all racial, rich-poor gaps and the cultural aspects that continue to bind black professionals to family obligations.
Just like most black South Africans, you don’t live in a vacuum. You exist in a system, an economic system that is bigger than you and sometimes outside your control. This means that you’re not entirely to blame for your current financial situation. Your experiences with money are tied to a flawed economic system. And this also applies to your family and friends.
The flawed economic systems have greatly contributed to the wealth gap in our countries. The causes of the wealth gap are multi-layered and complicated, with colonization, economic stability, historical injustices, racism, structural inequality, and educational disparities playing huge roles.
Career choices, choice of marriage partners or marital status, and your inheritance levels or lack thereof also play a huge role in determining how heavy of a burden black tax will be in your life.
Understanding the origin is important as I often hear poor people being told by the privileged folk to ‘pull themselves by the bootstraps’. As someone who experienced extreme levels of poverty in childhood, I know for sure that poverty is not a choice. Also, how do you pull yourself by the bootstraps when you don’t have boots, to begin with?
Often, family members who need financial help from us who are seen to have ‘made it’ are often going through some form of poverty. The black tax conversation is therefore one that needs to be approached with immense empathy.
Disadvantages of Black Tax
“It’s beautiful and tragic at the same time: the desire to look after others is frequently the reason why ‘successful’ professionals have trouble saving money and building wealth that could make a difference to the next generation.”
Black tax impacts your finances and those of your generations to come in several ways:
1. Affects your ability to save
If you spend $200 per month towards extended family support, that’s $2,400 per year. That’s money that could go towards funding many of your financial needs or even the much-needed emergency fund.
2. Affects your ability to invest
If we stick with the same figure above, $2,400 invested at a conservative rate of 10% for 5 years compounded equals $3.865.22.
You can still do both, pay black tax and also invest. Your ability to compound your wealth will always be slower compared to someone who’s paying way less or zero in black tax.
3. It’s harder to build generational wealth
You’re not just responsible for you and your nuclear family. You’re responsible for siblings, parents, cousins, and sometimes in-laws. For some people, it goes as far as having to pay down debt on behalf of relatives.
The odds of building wealth for yourself are therefore reduced to below zero which translates to a lifetime of scraping by for generations.
4. It negatively impacts your mental health
One of the reasons I wrote a rant on black tax was that I felt tired of being referred to as ‘a strong woman.’ This label often comes with the expectation that you can handle the most difficult of situations. Even those that could be a bit easier if people could only be a little empathetic.
Sometimes we feel that people don’t understand that we also have financial challenges, have dreams that we’re chasing, debts that we’re trying to clear, fears of losing the jobs that bring the money that we’re obligated to share.
These feelings often heavily impact our mental health.
Your ability to keep a job, properly manage your money, and build wealth highly depend on your peace of mind.
As a young professional, black tax is a hidden burden that’s always in the back of my mind. If you’re swimming in the same pool, here are 18 suggestions to help you deal with it:
How to deal with black tax
Some people have gone through extremely traumatic experiences while trying to find solutions to black tax. In such cases, one sometimes has to apply extreme measures in order to protect their mental health. This means that not all suggestions will apply to your life situation. Pick the ones that are suitable for your specific family situation.
It begins with realizing that we’re not all dealing with financial challenges of equal magnitude.
1. Remove yourself from the dependency cycle
One of my favourite personal finance quotes is from The Simple Path to Wealth by JL Collins.
“As individuals, we only have one obligation to society: To ensure that we, and our children, are not a burden to others.”
As an adult, especially one who has a job, you have one key financial responsibility: to work towards self-sustenance. By doing this, you will remove yourself from the family dependency equation which will not only set a good example to others but also lessens the burden of black tax from your family as a whole.
How do you do this? Start by building a 6 months emergency fund that will cover your financial emergencies or sustain you in the event that you lose your job.
Constantly ask yourself ‘If I lost my job tomorrow, how long would I survive while maintaining the same lifestyle while also avoiding becoming a burden to my loved ones?”
Next, create a solid financial plan that ensures you systematically make progress in your financial freedom journey every month. This plan should take into account any form of debt that you have, including savings and investments, save for retirement and be able to cover all your financial obligations.
I feel my dignity walking out on me if I have to borrow money from somebody who isn’t in my inner circle. For this reason, being fully responsible for all aspects of my financial life is my greatest financial priority.
2. Determine who is your primary, secondary and tertiary responsibility
As soon as you start working, financial requests start streaming in from all corners. Some of the people who expect, ask and sometimes demand financial support from you are people who are not your responsibility.
I have a client who had so many financial requests from extended family members that she would send them money at the expense of her children’s school fees. I was in shock for several minutes when she shared this. What the actual f*ck?
She’s not to blame. She just didn’t know better and fear of being judged and guilt-tripped by such relatives overwhelmed her.
You need to prioritize how you respond to these requests by determining who is your primary, secondary and tertiary responsibility.
This activity, where you actually have a meeting with yourself and determine who falls under your primary, secondary and tertiary responsibility is something that I take all my financial coaching clients through.
I noticed that every time I ask people the above question, they never name themselves as part of their primary responsibility. Especially mums!
You are your first responsibility. Did you hear me? You are your primary financial responsibility.
For the lady in our example above, her kids and spouse also fall under her primary responsibility category. Before she sends anyone else her hard-earned money, she needs to ensure that her nuclear family is well taken care of. Charity indeed begins at home.
Do the same. Download and fill this sheet to help you prioritize.
3. Budget for black tax
It’s unfortunate that it’s almost impossible to escape black tax due to systemic inequities and generations of poverty.
In my previous rant on black tax, I shared that my best hack so far has been to include black tax in my budget. After making sure that my basic needs are covered (I am my primary responsibility), I included an amount that I thought was reasonable to give towards extended family support on a monthly basis given the fact that I am the last born in our family, my parents passed on and I do not have any kids.
These facts are to show you that this amount will vary depending on your circumstances. There’s no magic bullet for black tax.
After settling on an amount, determine who or which cause needs it the most (your prioritization sheet will also come in handy in this case), give towards that, and make peace with it.
When other requests come within the same months, teach yourself to say no, confidently.
If you find it hard to settle on an amount, track how much money you give. Tracking such an expense for 3 months will give you clarity on whether you should reduce or increase the amount.
Of course, this is easier said than done because you’re likely to open even more floodgates of requests when some family members think that you have money to give on a monthly basis.
Some supportive relatives will understand your decisions, especially those who genuinely care about your welfare and make effort towards doing better with their money.
But this system works for me because deep down, I have made peace with the fact that I give what I can genuinely afford.
4. Set a deadline of how long you can offer support
You do not want to end up in a situation where somebody makes an assumption that you’ll support them in perpetuity. Unless it’s your elderly parent who doesn’t have any other source of income and is your primary responsibility.
If for example, you have offered to help someone set up a small business or are supporting someone who lost their job, be very clear on how long you will offer the financial support.
This will set the right precedence which ensures the person also takes responsibility towards getting themselves out of their current situation. It will also allow you to plan, which might involve adjusting your budget and denying yourself some form of luxury within the agreed time.
5. Don’t take up a burden that belongs to another
The farmer, the ox, and the donkey
Rodan, the spearmaker of Babylon received 50 pieces of gold from the king after designing a new spearhead for the royal guard.
Upon receiving the gold, Rodan was approached by his sister who requested that he lends her husband the gold so that he tries his luck in the merchant business.
Rodan didn’t know if he should lend the money to the sister’s husband because loaning the 50 pieces of gold would be the equivalent to loaning 50 years’ worth of spearmaking or an entire lifetime of hard work! So he sought advice from a wise gold lender in the ancient city of Babylon.
The gold lender responded by narrating the following story:
“This farmer, who could understand what the animals said to each other, did linger in the farmyard each evening just to listen to their words. One evening he did hear the ox bemoaning to the ass the hardness of his lot: I do labor pulling the plow from morning until night. No matter how hot the day, or how tired my legs, or how the bow doth chafe my neck, still must I work. But you are a creature of leisure. You are trapped with a colorful blanket and do nothing more than carry our master about where he wishes to go. When he goes nowhere you do rest and eat the green grass all the day.’
“Now the ass, in spite of his vicious heels, was a goodly fellow and sympathized with the ox. ‘My good friend, he replied, ‘you do work very hard and I would help ease your lot. Therefore, will I tell you how you may have a day of rest. In the morning when the slave comes to fetch you to the plow, lie upon the ground and bellow much that he may say you are sick and cannot work.’
“So the ox took the advice of the ass and the next morning the slave returned to the farmer and told him the ox was sick and could not pull the plow.”
“’Then,’ said the farmer, “hitch the ass to the plow for the plowing must go on.’
“All that day the ass, who had only intended to help his friend, found himself compelled to do the ox’s task. When night came and he was released from the plow his heart was bitter and his legs were weary and his neck was sore where the bow had chafed it.”
“The ox began first. ‘You are my good friend. Because of your wise advice, I have enjoyed a day of rest.’
” And I,’ retorted the ass, ‘am like many another simplehearted one who starts to help a friend and ends up by doing his task for him. Hereafter you draw your own plow, for I did hear the master tell the slave to send for the butcher were you sick again. I wish he would, for you are a lazy fellow.’ Thereafter they spoke to each other no more— this ended their friendship.”
What conclusions can you draw from the story? It’s an excerpt of a short story from my favourite personal finance book The Richest Man In Babylon.
The wise money lender taught Rodan a few lessons:
- Having money bears a significant responsibility and also the fear of losing it.
- It also suddenly makes some people in your life device “opportunities” to get the money from you by leveraging your relationship.
“Gold bringeth unto its possessor responsibility and a changed position with his fellow men. It bringeth fear lest he lose it or it be tricked away from him. It bringeth a feeling of power and ability to do good. Likewise, it bringeth opportunities whereby his very good intentions may bring him into difficulties.”
- Yes, it’s good to help. But don’t take a burden that belongs to another.
“Tis well,’ he continued, ‘to assist those that are in trouble, ’tis well to help those upon whom fate has laid a heavy hand. Tis well to help those who are starting that they may progress and become valuable citizens. But help must be given wisely, lest, like the farmer’s ass, in our desire to help we but take upon ourselves the burden that belongs to another.If you desire to help thy friend, do so in a way that will not bring thy friend’s burden upon thyself.”
Every time you receive a black tax request, ask yourself ‘how much can you comfortably afford to give?’ Love within limits.
6. Two broke people cannot help each other
I recently watched an episode of Financial Confessions where Ashley C. Ford was talking about her mum always responding emotionally when she says no to her money requests.
She finally had to make peace with it and often tells her ‘I will not make myself broke to help you. Two broke people cannot help each other.’ It may sound harsh but before you judge, watch the conversation here.
This is applicable to relatives who keep asking for money yet continue to live above their means and don’t make an effort to properly manage what they receive.
To help effectively, don’t give money you have budgeted for investment. Don’t give away your future. You are your number one responsibility. This is also one of those things that are easier said than done. But we have to learn.
7. Always pay yourself first before you help other people
Every time you fly, the flight attendants will always share the Oxygen Mask Rule:
“Should the cabin lose pressure, oxygen masks will drop from the overhead area. Please place the mask over your own mouth and nose before assisting others.”
This rule is also the best life hack when it comes to dealing with black tax. Pay yourself first, always. It may be the bare minimum of 10% or whichever amount works in your specific life situation, this rule is not debatable.
You can do this easily by automating your savings and investments.
Your investments should be automated and inaccessible.
8. Manage other people’s expectations by setting boundaries
Money is one of the most emotionally charged topics. One wrong word could lead to a fierce argument and a fallout between relatives.
And before we explore this tip further, remember that different families have different cultures and expectations. No two families are alike, you’ve got to learn how to deal with yours.
Setting financial boundaries means communicating what is okay and what is not okay. First, you’ve got to define these for yourself then communicate them to your family. Finally, you’ve got to hold them accountable.
I know what you’re thinking: communicating boundaries is hard! It was hard for me too (It still is!). It was easier to either ignore people’s calls, lie, then complain about it later. Which would leave me emotionally drained and hella guilty!
I recommend learning more about how to set boundaries and holding people accountable by reading Dr. Henry Cloud’s & Dr. John Townsed’s book Boundaries: When To Say Yes, How To Say No To Take Control Of Your Life.
For example, one boundary I have is: if I loan you money, and you fail to honour your word to pay, I cannot loan you anymore going forward.
If you don’t set boundaries around your money, black tax will become a heavier burden by the day and also set you up for resentment.
9. Always put the ball in their court
Let them take the lead when it comes to taking action towards solving their financial challenges. Let them come up with solutions.
For example, ask them to send you a message with a date on when you could teach them how to create a budget they can finally stick to. They should have sent you banks statements, receipts, etc before the date as proof of commitment.
10. Talk about money
A lot of our financial issues in families stem from the fact that we don’t talk about money. As Ashley once said, “Unspoken expectations lead to premeditated resentments.”
We don’t talk about this stuff in school, at home, or even with our friends. Most of us are clueless.
Create a safe environment among your loved ones to talk about money so that you can come up with solutions that propel everyone towards financial independence or at the very least, self-sustenance.
11. Let people be responsible for their lives
Once in a while, you’ll have relatives who don’t put any effort towards taking responsibility for their lives. When faced with a challenge, their default response is to call you for money or a solution as opposed to taking time to think about how to navigate their challenges.
Some don’t even care to ask about your mental well-being before downloading their problems on you.
People will always find a way to outsource their thinking from you.
My cousin taught me that anytime someone does this, I should ask them sasa utado? (what will you do?)
You have to stop allowing people to replace their growth process with your name and phone number. You cannot save everyone.
You cannot be more responsible over a person that they are responsible for themselves.
12. Who is genuinely making an effort?
If someone is genuinely making an effort to be better with money and to improve their lives, help them. As you do this, refer to tip 4 above: Set a deadline of how long you can offer support. Begin with the end in mind.
13. Don’t be an enabler of bad money habits or addictions.
You probably know the people in your life who use the money you send them to upgrade their lifestyles by buying new gadgets, clothes & shoes, alcohol and other forms of drugs.
If you know that giving someone money will end up being harmful, for example, people who suffer from alcoholism and such addictions, don’t give them money. Giving them money fuels the addiction.
Find alternative ways of helping such as buying them groceries, clothing, delivering a home-cooked meal, pay for a class where they can learn a new skill, collaborate with other family members to have them see a therapist or such professionals.
13. Teach your children about personal finance & investing
Low levels of financial literacy is a great contributor to this black tax challenge. You can stop the cycle in your family by teaching your children about personal finance and investing. I will write a follow-up article on this.
We just don’t want to live and die. We want to leave a legacy for our kids and future generations.
14. Collaborate with family members
I recently met someone who would contribute as much as $600 towards family support and was neck-deep in debt. How did this happen?
Because the person has a good job, everyone else in their extended family assumed that the person earns millions and can therefore afford to take up the full responsibility of supporting the parents and even in-laws.
This negatively affected the person’s ability to save and invest which eventually led to huge sums of debt.
This story is a reminder that you should stop playing the saviour. You cannot do it alone.
Collaborate with other family members by setting up a joint account that you can then use to secure medical insurance and major bills for the elderly in your family.
15. Have clear financial goals
Keep your goals close and review them often. Let them be top of mind so that when you receive random financial requests, you know what to prioritize.
Here is a guide on how to set financial goals that yield results.
Once you realize the amount of work and time it takes to come up with a budget and stick to it, achieve debt freedom, invest on a regular basis, then you won’t let other people’s lack of planning disrupt yours. No matter how much you love them.
16. Ask for a payment plan, in writing
Most personal finance teachers say that you shouldn’t loan money to your friends and family. That when you do, you should consider it a gift to avoid major heartaches.
I do understand where this argument comes from. We’ve experienced enough disappointments in the past when we loaned money and never got it back. Not to add the fact that asking for what is rightfully owed to you becomes a war and an emotional rollercoaster.
That being said, I still think that you should be able to create an environment among your friends and family where you can loan each other money without all the drama.
It’s an honourable thing to pay back your debts. I do it all the time and expect the same level of honesty from my close friends.
If you still haven’t established such relationships with the person, ask them to put their payment plan in writing. Also let them know that if it becomes a tug of war when it’s payback time, you will never loan them in future.
It’s a sign of maturity to be transparent about your inability to pay on time . We need each other to be build wealth.
And don’t take loans on behalf of family members.
17. Don’t reveal your financial information
Don’t give people your personal information such as payday.
I’ve heard stories of family members who call like clockwork when they know your payday. They also guilt-trip you when you buy yourself something they consider expensive.
Keep that part of your life private.
How to avoid black tax
Yup! How to avoid black tax is something people often Google. There people who decide to completely avoid it altogether. Props to them!
For the rest of us who can’t, if we genuinely can’t afford to give financial support, we can help in other ways such as:
- Reviewing the family members’ CV
- Helping them with interview preparation
- Creating and reviewing their budget
- Teaching them financial literacy skills
And they should accept that form of help because your time is also valuable.
Even with all the above suggestions, events beyond our control such as natural disasters and illnesses still occur and we have to support them. Either way, there should be mutual respect and empathy accorded to both the giver and receiver.
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How do you navigate the gift or burden of black tax? Help build a good resource for this elephant in the room by leaving your suggestion in the comments section. You’re also welcome to correct me and build my arguments!
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