How to escape the ‘black tax’

EXTENDED FAMILY: 6% OF SAVERS WILL HAVE ENOUGH

So you have a job. And the rest of your family doesn’t. That means you’re probably going to have to bail someone out at regular intervals, but does it necessarily mean your retirement savings must be shot to hell?

The phenomenon of “black tax” – where investors dip into retirement savings to bail out extended family members – is creating an endless cycle of poverty for many families.

The Financial Services Board says only 6% of SA retirees are financially independent, while the remaining 94% are dependent on their families, friends, or the government.

Sharp point

Only a quarter of South Africans aged between 18 and 30 are saving for retirement, according to the Old Mutual Savings and Investment Monitor.

For many, this happens because they’re too busy looking after extended family, instead of saving and investing.

But this “black tax” applies across cultures and races.

Young professionals, from white, Indian, coloured and other races, also find themselves stuck with helping their families once they start earning some money.

The rural-to-urban movement of young professionals leaving their families for job opportunities in urban areas, with the family expectation that they will come back to help with household living and subsistence expenses, is the common basic setting for the practice of black tax playing out.

“Black tax” is actually an opportunity cost on savings you could be making to ensure you have a brighter and debt-free future.

In the larger scheme of things, this means families are not able to get out of the poverty trap.

This means they will also be burdened with paying heavy “black tax”. And so on it goes.

This increases the financial burden on the state as an increased number of people need social grants.

In addition, people’s quality of life is also affected as they cannot afford good healthcare.

Nevertheless, this does not mean young professionals must not fulfil their family obligation of assisting back home.

Ultimately, it is not about how much you earn, but about how much you spend. You need to temper your spend on black tax. If you do proper budgeting and planning you can find something to save.

Saving is a long-term project, therefore you can start with an amount that you can afford, no matter how little you think it is.

This can always be improved upon as your financial situation improves.

What also helps is to manage family expectations.

Having a frank conversation about what you can afford to spend on family financial obligations will also help.

Show them that, instead of spending R1 000 on something, you can spend R800 and save the R200 so that it can accumulate interest in the long-term.

Have a conversation with them about budgeting.

End the cycle

Making them understand this will help to put a stop to the cycle of debt, as better money-management will lead to a curb in irresponsible spending.

Proper advice will also empower them with knowing how to broach the issue of budgeting and saving and living within your means with their families.

This will ensure everyone is on the same page without perpetuating poverty for the next generations.

Lesego Mpete is corporate benefits consultant at BDO Employee Benefits and Radhika Daya is assistant financial planner for BDO Wealth Advisers