Dealing with black tax
Financial education empowers people to have tough talks with loved ones. OBLIGATIONS: HOW TO HELP FAMILY WITHOUT HURTING YOUR GOALS
Black tax has no set definition – it is different things to different people. One definition might be the financial contributions young black workers make to assist their families.
While financial family responsibility is universal, what is unique for many blacks is the extent and prevalence of their obligations.
Because of the history of dispossession and segregation – like education and healthcare access, coupled with high levels of unemployment – many young and middle-age blacks are likely to be breadwinners.
These breadwinners may be the first in their family, or the first in a number of generations, to have received post-school education. This education may have come at a great cost and sacrifice from their families.
This context can make their family financial obligations emotive and difficult for individuals who also want to achieve their financial goals. Hence, prioritising one’s own financial well-being may seem like a selfish pursuit in these circumstances.
It is in this context that financial service providers must ask – how does an individual build wealth and preserve it for future generations if they bear a financial responsibility to their family, and how can the sector help?
The first answer is to make quality financial education more readily available and free of charge. Financial education can introduce South Africans to an ever-expanding range of financial products that can help them to take care of themselves even as they assist their families.
This critical information can create new opportunities for young people to think about what they want to achieve for themselves – a new car, purchasing a house, planning for a child’s education, or furthering their studies. It also includes looking at current financial obligations and costs and setting an achievable plan.
Another important aspect of financial education is developing a full understanding of when to use debt and when to make its reduction a priority.
Understandably, in the context of black tax, debt may be an appealing option to meet financial obligations. But, if not managed well, it can set back your prospects of home ownership and reaching other goals. While debt management may feel like a failure, it’s important to realise that it can in fact be the first step in your wealth journey.
Understanding more about finances is crucial to knowing the questions we must answer to get on with our own wealth journeys. It also empowers individuals to have tough, but well-informed conversations with loved ones about money and what is within their capacity financially.
Doubtlessly, the most important overall lessons financial education can teach is that many things happen by chance, but a financially sustainable future is not one of them. It takes a significant amount of effort, difficult discussions with families about priorities, tough choices, planning, and perseverance to make it happen.
The second important step that financial institutions can take is to provide innovative solutions and products that can meet more than one need for individuals who have family financial obligations.
Take the example of funeral cover. For an individual who is a breadwinner, it is likely that they are paying to cover multiple family members with funeral insurance. This monthly cost can add up and can make other insurance products which could create generational wealth – like disability, dread disease or life cover – simply unaffordable.
Hybridised plans which provide more options under one umbrella can provide far more value for meeting personal goals while minimising the cost of purchasing these individually.
Debt management can, in fact, be the first step in your wealth journey