Have you heard of Black Tax? Have you gone through it?
For starter’s, Black Tax refers to money Black and people of colour pay to support their immediate and extended families. For instance, you could be paying for your sibling’s education, helping your parents back home or even funding a relative’s business venture.
A few months ago, I had a conversation with a friend regarding financial success and independence for young people. The conversation started with a discussion of Boots Theory from this article. It then evolved to some of the issues we’ve seen our peers and ourselves go through.
Among other issues that hinder us, young people, from financial success, including poor planning, was the Black Tax.
One of the hottest topics nowadays is whether Black Tax is a burden or not. The answer to that depends on how you view the whole scenario.
But, there is no denying Black Tax has an impact both positively and negatively.
The Disadvantages of Black Tax
“My mother calls it ‘the 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.”
~Trevor Noah – Born a Crime
1. It Affects Your Ability to Save And Invest
Imagine if the money you sent to a sibling, parent or relative at the end of every month or week went into your savings and investments? It might seem like little money, but it could be enough to fill your emergency fund or increase your investment portfolio when you add it all up.
For instance, let’s assume you sent $100 back home every month, and a friend of yours sent the same amount to their investment account. It doesn’t even have to be an investment account with high returns. Let’s settle with a Money Market Fund. In one year, you have both set aside $1,200.
Your friend’s money will earn a return of around 10% pa, and they can always count on this money to sort their emergencies or specific significant purchase. If they were to send that money to an investment account every month for, let’s say 5 years, it would compound to about $7,800 to $7,900.
2. You Can’t Build Generational Wealth
How many of our parents had us set up with trust funds? Not many, I presume. But, the one thing I have heard from my friends is wanting to set up their kids financially. They have savings and investment accounts where they put some funds aside often in the hope of passing it over to their kids when they are in college. And I love to hear such stories and to see their determination. This kind of money can help their kids avoid college loans and have something to start them off in life.
If you are constantly paying Black Tax and have nothing left to set aside for your kids, you can’t build generational wealth. When your kids start earning, they will probably have to take care of you in old age because you’ve little to nothing. And the cycle continues.
And this brings us to the next point.
3. You Have Little To No Savings For Retirement
Most often, people spend the better part of their working life supporting everyone around them, and by the time they realise it, they are heading to retirement with little to nothing on their name.
Yes, you’ve probably constructed a small structure upcountry. But even if you are not paying rent, what about other expenses? There is food, healthcare and maintenance of the house, just to name a few. Some people have been working their whole lives but are struggling to get by in retirement. It’s not that they were not making some money. The issue is probably because most of their money went to paying Black Tax.
Related post:Thinking About Retirement? Will Your Retirement Income Be Enough?
4. It Affects Your Mental Health
The responsibility of having to care for everyone around you is taxing. Every time you see a phone call or a message from a relative, you dread it. There is a high likelihood that someone wants some money even for things they could do themselves. Some people have accumulated debts in the name of helping relatives.
You are constantly worrying about money, not just for your relatives but for yourself and your growing family. As a result, you have probably shelved your dreams and ambitions. Or stuck in a job you barely enjoy because you need the little money you can get.
When all these pile up, you are left with mental health issues like depression and anxiety.
Is Financial Trauma Keeping You From Financial Freedom?
How To Deal With Black Tax
For some of us, Black Tax is inevitable. But it doesn’t mean you have to sacrifice your mental health and financial success at the expense of caring for your kin.
1. Put Yourself First
Selfish as this sounds, you MUST put yourself first. While you want to help your kin, can you just think about what would happen if you lost your source of income? Who would help you pay for your expenses?
I’ve seen people who spent the better part of their working life caring for their families. They have built them houses, taken their siblings to schools and helped in every way they could without blinking. Unfortunately, now that they don’t have a stable source of income, the same siblings and extended family they helped is not there for them.
So, before spending money on anyone else, start paying yourself first. Set some funds aside for your emergency funds, investments and other savings.
2. Budget For It
Second, have a financial plan to work with. In your plan, ensure that you have set a specific amount or range that you set aside for your kin. This way, you are not always borrowing to send money to people or spending more than you have, even if it is helping people.
Don’t stretch yourself too thin in the name of helping and supporting others. If you can’t afford it, just say it. If it is not part of your budget, don’t go borrowing from every digital lender so you can be seen as a responsible son or daughter. Let people learn to be responsible for their lives and financial situations before it gets to this point.
3. Set Boundaries
When I first started earning, one of my colleagues and a dear friend sat me down. By the end of that conversation, I already knew what boundaries to set. For example, I knew how much I was willing and able to send back home for whatever expenses (although I backslid a few times). I also knew who to put first and second in terms of taking up these extra responsibilities.
That conversation helped me set boundaries with people in my life. If I can help, I will help to the best of my abilities.
Young people get jobs in the city, and suddenly people think you are a millionaire. No one stops for one second to think about your financial situation and security. When you set boundaries, not everyone will have access to you whenever they feel like it. It will also help you manage people’s expectations.
Can you set boundaries on who has access to you! Apart from paying yourself, who else is your primary responsibility? If you have a family of your own, then they come first. Before distributing your hard-earned money, are your kids and spouse catered to? Then, you can move on to your parents and siblings.
4. Keep Your Financial Information To Yourself
During my pep talk with my colleague, the first thing he said was never to reveal my financial information to anyone. That includes how much I made, when I was paid and how much I had in savings.
There are people with no boundaries and empathy for others whatsoever. They are the first to call at the end of the month, not to check up on you but to ask for money because they know it is payday. Some already know how much you make and have a budget for it.
5. How Long Are You Willing To Provide For Them
While having the Black Tax conversation, we touched on how many young people are forever paying the Black Tax. Why? Because someone has turned them into a retirement plan or a forever cash cow for whatever expenses they have. Some relatives never work, even though they can because they know they have a source of funds.
If you get someone in a comfort zone where they know you are at their every beck and call, you can be sure they will milk that cow to kingdom come! If you are paying fees for someone, agree on the timelines. What happened after high school? Can you afford their college tuition? What happened after college? Will you continue to cater to their living expenses? If you are helping someone set up a business, how much are you providing and for how long?
6. Talk About Money & Teach Them About Financial Responsibility
Apart from setting boundaries and expectations, teach them about money and financial responsibility. Remember that old saying about teaching a man how to fish? You could teach or show them how to make an income. Help them build a business plan if they want money for a business. Give them tools to learn about budgeting, saving and investing.
Related read:Parents And Money: How To Talk About Finances With Aging Parents
The bottom line is Black Tax is probably inescapable for some of us. But, it doesn’t mean we can’t do anything about it. Even if you feel it is your responsibility because someone made the same sacrifice, start thinking about your future and children. It’s time we started breaking the cycle and built generational wealth ourselves.
