The impact of ‘black tax’ on young black professionals

You might have heard the term “black tax” bandied about among young black professionals, either while rolling their eyes or cringing as they are forced to admit that this colloquial term applies to them.

“Black tax” refers to the portion of income that black professionals are obligated to provide to their families once they start earning a salary.

Investopedia defines it as follows: “Black tax, a term that originated in SA, is the financial responsibility placed on family members who experience upward mobility to support their relatives who are less fortunate. Often, the successful person is the first one in a poor family who graduates from college or attains a high-paying job.”

This cultural phenomenon is a lived reality in most African households and can impact the ability of many black professionals to save and build generational wealth.

Usually, when young adults exit the nest, they become independent and earn an income to spend as they please. This is not the case with “black tax”. There is tremendous pressure to take care of the financial and socio-economic needs of less financially secure family members.

I spoke to Yanga, a young professional within her social circle about how black tax affects his savings plans.

Yanga, for example, has been living independently since the age of 21. As a brand ambassador for an NPO, he takes home an average income of R25,000 but sends a minimum of R7,000 to his parents based in the Eastern Cape.

“It is unfair that I do not get to enjoy my salary like my peers do. As the first graduate in my family, I am expected to contribute to groceries and to the school fees of my nieces and nephews who are looked after by my grandmother. If I don’t contribute, the old age grant is not enough to support the entire family,” Yanga said.

In many instances, young urban professionals like Yanga face a relatively high cost of living, barely covering the basics like rent, groceries, and travel. Unable to save or invest, they face the likelihood of never clawing their way out of the dire financial situation inherited from their elders.

“I wish could put away money for my future for as little as R500-R1,000 that I did not have to think about, to protect my future. Black tax poses a significant barrier to young professionals hoping to start a business of their own or lead a more comfortable lifestyle. They’re expected to send up to 50% of their post-tax income back to their family and most likely also have to contribute to extra expenses, such as the cost of a family funeral or servicing familial debt,” Yanga further explains. 

With all of these obligations to fulfil, it can be challenging for someone at the cusp of their career to consider investing in their own future. Without the relevant financial know-how, they’re unlikely to invest their earnings wisely and put something away for a rainy day.

In order to build their own wealth, they could consider some smart saving options. One of these is a tax-free savings account (TFSA). The benefit of this account is that the holder doesn’t pay tax on any interest, dividends or capital gains, and can access their cash whenever they need it. The minimum investment is only R500 per month, making it an accessible investment option, even for early earners.

As a nation, we have a long way to go, in the same vein, we can only do better as people, when we know better.

If you’re a young professional looking to make more of your earnings, speak to a 10X Investments expert about a TFSA today and start saving the intelligent way.

• Skenjana is the head of retail Growth at 10X Investments and is also the author of A Black Girl’s Guide to Corporate SA