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How To Get A Return On ‘Black Tax’

Due to South Africa’s unemployment rate of 45.5% (expanded definition), the lingering effects of the past, and the economic ravages of the pandemic, more South Africans than ever are subject to ‘black tax’. While black tax is often portrayed in a negative light, South Africans who bear the responsibility for extended families can find ways to empower themselves and their families financially through good practical suggestions to build generational wealth, thereby leaving a legacy for the future.

Sipho Mncwabe, Head of adviser for transformation at SanlamConnect says, “The family responsibility which has come to be known as ‘black tax’ is deeply rooted in the African way of being. While admirable, if not managed well, shouldering this burden can be financially draining. With the right financial guidance and an integrated approach to financial management, we can change the narrative and turn black tax into a vehicle that can help many South Africans live with confidence.”

Mncwabe and Farzana Botha, Segment Solutions Manager at Sanlam Savings, believe that ‘black tax’ can help unite families, through honest conversations and shared goals:

Know your limits and stick to them:

Being honest about what you can and cannot afford, especially when confronted with family members who may be experiencing challenging times, can be difficult. Nonetheless, it is an important lesson to master. Overstretching your budget has the potential to leave you unable to assist your family or yourself. 

Mncwabe says, “It is important for caretakers to realise that decades of unbalanced allocation of resources have resulted in inequality and poverty for many South Africans. Against this background, it is important to balance one’s compassion with realism and accept that we will be one of the links in a chain of change.”

Money is not your only resource:

Help is available in many forms when it comes to building generational wealth. Often the most important form of help is not the money itself, but the lessons around money management.

Botha says, “It is vital to see your financial position as one of leadership. Through your lived experience, you can offer more than just your financial aid. You can also offer your intellectual and emotional aid.” It is often said that a rising tide lifts all ships, so by improving your own financial education, you are holding the door open for those coming up behind you.

When giving financial assistance it is important to remember that the more you help your family plan for tomorrow, the more you are equipping them, and future generations, to be financially independent.

Botha says, “To assist others you also need to help empower them. Guide them toward financial education and budgeting advice. Help them to look for ways to make ends meet on limited resources. Crucially, be upfront and honest about your financial position to help manage their expectations of your time and resources. If you can, instead of just sending money, allocate money to opportunities for development for those who depend on you.”

Have tough conversations:

None of this can happen without open and honest communication. Unfortunately for many South Africans, conversations about money can be sensitive. Destigmatising financial conversations is the most important step in the process of turning ‘black tax’ into a tax return. This means having frank discussions that specify the nature of the financial assistance you will be offering – outlining why you are helping, the duration, and what you hope to achieve. Facilitate a conversation with yourself, your family and a holistic financial adviser who can help you all map out attainable goals that are unique to your circumstances.

Mncwabe says, “As a caretaker, one should insist that the dependent takes steps that are within their means, to make a difference in their own lives. Otherwise, you can easily find yourself starting to own the challenges faced by a family member with an expectation to provide all the answers, and help. This means having difficult conversations and setting clear boundaries.”

Look after yourself:

While empathy and support are important and necessary human characteristics, be careful of sacrificing your mental, physical, and financial health on the altar of family responsibility. Remember that, without you, others may find themselves in greater difficulty and unconstrained support may not be constructive. Make sure all aspects of your mental, physical, and financial health are in good shape. This may also ensure that your obligation feels less like a burden and more like an investment.