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According to the acting chief executive of the SA Savings Institute (Sasi), Gerald Mwandiambira, black tax applies to some of the previously disadvantaged middle class people who have found relative financial success in employment or are considered to have “made it”.
They find themselves having responsibility for and often financially supporting their direct young families, as well as older parents and extended family.
Black tax is often a lifelong commitment and passed down from one generation to the next.
The sandwich generation
An example of the “sandwich generation” is a university graduate in a family who is earning a good salary and finds him- or herself becoming an instant breadwinner for a large family.
According to the 2015 Old Mutual Savings and Investment Monitor, 25% of South Africans may be paying black tax as part of the sandwich generation, an increase of 2% from last year.
How black tax works
Economist and executive chair of Rethink Africa Ayabonga Cawe says black tax takes in two different ways from a salary perspective.
“You have those who send periodic amounts home [at the end of every month, for example] and, secondly, you have those who pay infrequent, but in many instances, large amounts which are often not budgeted for (such as unveilings/funerals, other rituals, education and various major, and often urgent, household costs) towards fulfilling their familial expectations and responsibilities,” says Cawe.
Impact of black tax on savings
According to Stats SA, South Africans spend, on average, 76% of their monthly income on debt. The remainder goes towards necessities such as food, housing needs, utility bills and transport.
While there was an increase in the salaried adult population last year, 78% of the adult population earned an average personal monthly income of less than R2 000, and only 44% of those people had any long-term savings or retirement products.
Benefits of black tax
Mwandiambira says that if the money used for black tax is not spent primarily on consumption – for example groceries, maintenance, lodging, and so on – but on projects such as educating people or creating businesses to generate money in the future, then it can produce long-term benefits.
“It enables people to empower themselves through education and business growth, which in turn contributes towards independence and possibly breaking the perpetual, generational cycle of black tax,” he explains.
How it affects the black middle class
Cawe says the black middle class in South Africa is incorrectly defined if the lowest earners in this category earn as little as R4 100 per month.
He says that with chronic unemployment and high levels of debt, the sphere of personal responsibility for the black middle class is immense.
“This point becomes important if we consider the strong links that the black middle class has to its extended families in township, peri-urban and rural communities.
“After all, there was no black middle class before the 1990s in South Africa sizeable enough to merit much political and economic attention – as we have now,” says Cawe.
With such high expectations and added responsibility, Cawe says, the black middle class is burdened not only by asset catch-up and status signalling (that is, consumption not for utility or need but to signal a certain class status), it also has to cater for the extended family.
Advice on how to cope with black tax
“It is important to take your family into your confidence regarding your financial situation. This does not mean refusing to help but being able to collectively plan sufficiently to avoid financial distress,” says Cawe.
Mwandiambira shares the same sentiments.
“It is important to be able to say no when you have extended yourself to your maximum capability. Don’t overburden yourself or drive yourself into debt. Have your own savings plan for retirement and emergencies to avoid making your children the next sandwich generation supporting you,” he says
