Black tax: Turn a grudge expense into a social investment
RANDS AND SENSE:
By Palesa Tlholoe
Black tax is something that almost all successful young black people have to deal with. Urban Dictionary defines the phrase as: “The extra money that black professionals are expected to give every month to support their less fortunate family and extended families.”
Unsurprisingly, much of what has been written about black tax has focused on the negative aspects. For example, the financial struggles faced by many black professionals have been blamed on those professionals having to pay all their earnings to cousins, aunts and uncles. Eavesdrop on a conversation at a restaurant in the suburbs and the chit-chat will inevitably turn to the burden of black tax and how it symbolises a lack of progress in the country.
But black tax is about so much more than needy relatives; it’s about the mindset surrounding money and improving your financial skills so that you can shift the concept from negative to positive, with a view to better outcomes for everyone concerned.
First, a history lesson
Before we can discuss how to change the narrative, it’s worth going back a couple of decades. In 1994, most white people entered our new democracy with generational wealth, also known as “old money”. This gave them a financial jumpstart over black South Africans, who transitioned into the new period with little more than the shoes on their feet. As those people founded businesses and rose through the corporate ranks, they felt obliged to use their newfound wealth to address the disadvantages suffered by their parents’ generation. And so black tax was born.
Research into social movements argue that people will not ordinarily take part in something unless they feel deprived by that thing. In other words, because a black person has actually felt what it is like to be underprivileged, he or she will have a keen interest in helping family members break the cycle of poverty.
Yes, it’s an expense that I’m sure you wish you could do without, but helping your loved ones financially is actually the right thing to do. The situation in South Africa is unlikely to change any time soon – if you don’t help them, who will?
Flip the script
The trick is to change the way you think about black tax, starting with the name. How did such a potentially powerful cause become known as “tax”? It’s no surprise that many people try to avoid it! Instead of thinking of it as a grudge expense, rather think of it as a social investment. And the return on that investment? The positive change that you would have created.
Unfortunately, that’s where the easy part ends. The hard part comes in planning for your investment, just as you would for your home loan or your car repayment. Luckily you don’t have to do it alone. A Certified Financial Planner will initiate a conversation about where you are now and where you want to be in the future, and help you work some magic with your income so that you can achieve all of your goals, including those concerning your family. This is often achieved through deceptively simple techniques like creating a monthly budget (and sticking to it!) and by keeping your debt to a manageable level.
More than a hand-out
When it comes to your social investment, don’t just give family members a hand-out. Your financial advisor will be able to show you much smarter and more efficient ways to use your money. He or she will help you draft an agreement that clearly specifies the nature of the financial assistance you will be offering, outlining why you are helping, the duration, and what you hope to achieve for the family member concerned.
There are various donation exemptions in our tax laws, and your advisor will also be able to help you structure your payments to make the most of these. That’s real tax – you don’t want to pay more than you have to!
Opulence might be on display all over social media, but materialism will never be a synonym for success. Real success is not the latest Range Rover, it’s long term financial stability; investing in growth assets that will generate income for decades to come. And it’s watching your younger brother graduate from university, knowing that you helped get him there.
Palesa Tlholoe, CFP, is co-founder and wealth manager at Imvelo Wealth Solutions