Dear black tax, how will I ever save?

YOUNG people entering the workplace for the first time are bombarded with messages on how important it is to save.

For those already saving, scary figures are thrown at them telling them how inadequate their savings are. The harsh reality is that with the rising cost of living, it is extremely difficult for anyone to save.

As is so often the case in South Africa, the burden is greater for young black employees who, on top of everything else, are obliged to pay black tax as well.

It’s difficult enough to get a job, even as a graduate. According to Statssa figures for 2016, only 17.1% of black graduates are employed against 49.6% for whites.

Trading Economics reports that the personal savings rate averaged 4.8% from 1960 until 2018, reaching a record high of 23.8% in the second quarter of 1972 and a low of -2.7% in the fourth quarter of 2013.

The low savings rate, along with the harsh realities of black tax, are a substantial weight for many newly employed black graduates as well as a burden for most income groups.

Black tax is an intrinsic part of South African culture that unfortunately is usually ignored in all forms of formal financial planning.

It stems from the gratitude that young employees have towards their families for putting them through school and often university.

Reinforcing all this is societal pressure: often black tax payments are expected, and those who defy it are stigmatised.

How can you budget for this when you’re trying to cut your spending by going after that 5kg rice special at Makro, but you’re also paying for your uncle’s backroom rent?

So let’s take a “Jim comes to Joburg” scenario and deconstruct how black tax may fit in a budget, which we’ve drawn up below.

Jim, from Joza in Makhanda (formally Grahamstown), made the most of his scholarship and recently graduated from Rhodes University with a Bcom.

His new job in Joburg earns him R21 300 a month which, according to Trading Economics.com, is a “highskilled” salary in South Africa. Of course, the stressed with the very small surplus reflects the difficulties of all people in this income bracket, regardless of race.

The list of regular, unavoidable expenses listed in the budget below shows that it becomes next to impossible to save, much less invest in a retirement annuity (RA) – which of course, you need, so that your future children will not be paying black tax to you.

And there is no room for that black tax.

The RA monthly payment is 15% of Jim’s monthly income – the recommended amount to save in an RA, but you get tax benefits if you pay up to 27.5% of your salary.

The medical aid payment is based on an entry-level plan, while the other expenses are based on the typical percentage a person pays for each, according to Business Insider.

Immediately, we can see that the expense figures are not practical. Jim’s regular monthly payments eat up most of his disposable income, leaving just R1 355. That will be spent through miscellaneous onceoff costs: Jim still needs to buy work clothes, which he’ll probably need to pay off over six months or a year – and still factor in entertainment and any unplanned costs.

If Jim had some spare change after the miscellaneous expenses, a tax-free savings account (TFSA) and not the “Nike fund” would be ideal. But, that black tax factor has not magically disappeared.

There are a few questions we need to ask. First, does Jim risk not taking out a medical aid and an RA to ensure he pays his uncle’s backroom rent and the family’s groceries? Second, when will Jim ever be able to save for a home and a car? And what about lobola? Finally, must Jim get into debt just to be able to meet his living expenses and still help out relatives back home?

It’s not only that income bracket that struggles: the table below is an example of a budget for a middle-class working South African. While the income is higher, so costs rise. But the budget is based on the same typical percentages in the Business Insider estimates for the average household.

The outcome of the surplus in the form of miscellaneous onceoff costs is only R512 per spouse – so even higher-income earners struggle to save, as expenses balloon significantly in the monthly salary deductions. This begs the question, should middle-class income earners also get themselves into debt to be able to afford this black tax?

South Africa’s economy is in dire financial straits and consumers are buckling under the weight of the increased VAT rate and fast-rising petrol prices. Disposable incomes are under huge pressure. Things are unlikely to improve anytime soon and costs will keep rising, probably faster than wage growth.

Essentially, Jim – and countless others like him – cannot establish himself with a house and car without financing his lifestyle by getting into debt, bearing in mind that for all his good intentions of giving back to his community, the community may not give back to Jim.

■ Twala is editor of www.savetaxfree.co.za