The Black_Tax

Have you ever heard of the Black Tax?

I learned firsthand about the Black Tax by observing the enormous sacrifice and dedication of several friends of mine—economic migrants—to support their families and communities back home.

Still, it took me some reading to fully grasp its complexity.  While such support can be extremely positive and impactful, its weight on individual “sponsors” can be devastating if not well managed. Taken to an extreme, it can even damage the end-beneficiaries by reinforcing a dependency culture. That’s why I believe looking at how it works and how to meet such obligations matters.

 

The positive side of the Black Tax

The term “Black Tax” is commonly used within the Black community, but its essence extends beyond ethnic boundaries. It denotes the regular financial support given to family members to help them meet their needs.

While the word’s origin lies in South Africa’s financial disparities, the tradition of providing financial support to family members is deeply rooted in African cultures. To different degrees, it is present in all cultures as soon as a family member is better off and in a position to support his/her relatives and friends in any way.

On a global scale, it is easy to monitor such a level of financial support through the remittances that have recently reached a mind-blowing magnitude:

“2021 remittances flow (US$605 billion) more than tripled the total amount of international official development assistance (US$178.6 billion), said IFAD.”

As I pointed out in a previous post on the power of savings,  the remittances of 200 million migrant workers in 2021 were three times the volume of international development aid!

Therefore, it is evident how the support provided by millions of individual “sponsors” has a positive effect back home. It contributes to several family members’ and friends’ education, health, and day-to-day livelihood. It also provides a sense of meaning and value to the sponsor that helps his/her family, friends, and community back home. That’s all good and can sound like a well-spent life. Paying the black tax can be a badge of honor!

 

The Dark Side of the Black Tax

Through conversations with several African friends, I understood why this financial support is more than a mere financial obligation—it embodies an unspoken commitment to supporting family and community members without clear boundaries.

A sponsor does not dedicate a budget to such support, limit the number of people he/she feels the need to support, or set up efficient ways to distribute such support. It is often on-demand.

You can hear sentences like:

“I have been raised like that. I must help. It is a part of our culture”.

“I cannot say no. It would be unthinkable. It would be a shame”.

“If I don’t, they have no one else to go.”

Reading several articles on the subject, I learned how many “sponsors” experience feelings of guilt or duty when supporting their families financially, leading to heightened stress levels and emotional strain. The cultural backdrop of communal support and familial obligation adds complexity to the Black Tax phenomenon, making it a multifaceted issue.

Not being a regulated tax, the donor lacks a blueprint for managing it; he/she is subject to peer pressure. I see three challenges in the phenomenon of “the black tax”:

A) The black tax has no percentage indication or limit. For instance, while several religious groups have a tithe (a 10% tax/donation for their church) and Zakat (2.5 % of your savings among Muslims), the black tax is limitless, based on demand and availability.

B)  There is no formal eligibility. This help is not only claimed by “close” family members. In several cultures, such obligations go towards the large family, friends, and friends of friends, as well as acquaintances.

C) More surprisingly, based on several sources, there is often limited accountability on how the funds are used. Money is sent. Still, it is hard to ascertain if it is genuinely used correctly. It is all based on trust and honor, leaving significant changes to abuses.

The backlash of the black tax to the sponsors can vary:

1) You limit not only your disposable income but also jeopardize your savings

2) In some cases, because you have a credit history and a secure job, you accrue unnecessary debt on behalf of others

3) You are unable to accumulate and invest capital to improve your financial condition

4) There is a risk of creating a poverty trap for yourself and your end beneficiaries

5) You have not full control on how your money is used

6) Even in the best-case scenario of a successful sponsor,  an excessive allocation of financial support will limit your ability to invest capital efficiently, securing more long-term impact.

 

Strategies to mitigate and manage the negative spillover effect of the Black Tax

To effectively manage the Black Tax, a sponsor should:

A) Set clear boundaries regarding budget allocation towards financial support (set a realistic % of monthly revenues allocated to the family/community support and stick to it). Do you recall the airplane protocol? You must first be able to access your oxygen mask before helping others with their oxygen masks).

B) Set financial vehicles and methods to efficiently and effectively transfer and spend money

C) Set up trusts to get tax benefits and improve the allocation of resources among family members. Ideally, ensure your investments generate enough dividends to cover your financial duties (black tax, tithe, or Zakat): raise and protect the goose that generates golden eggs. 

D) Provide in-kind support, securing the required goods and services (reduce abuses)

E) Train family members in managing money and assets in a transparent and accountable way (financial literacy)

F) Train family members and friends to overcome short-term emergencies, improving their income and money management capacities

G) Work on your  Ego and leadership: you might feel proud to help. You might indulge in “offering a fish instead of teaching how to fish”!

H) Work on your soft spots and insecurities. If, for any reason, you feel guilty, you feel you don’t help enough, or you cannot say no, no matter what you are already sharing, you might need to speak with a specialist to discuss these triggers. Things must be addressed if help is not given in a healthy and free way.

I) Ensure your help goes where it is most needed without reinforcing a subsidy or dependency culture.

 

Bottom line

Winston Churchill put it beautifully:

We make a living by what we get, but we make a life by what we give.

How we help is a personal choice based on individual means and ethics. Still, these are economic and financial matters, where we operate on limited resources and unlimited needs.

To secure the best impact, there is an optimal “how”! You don’t need to be Bill and Melinda Gates, Warren Buffett, or a religious person to set up a methodology to share your wealth among family and community.

It is possible to do it in a healthy and sustainable way for both the sponsor, the beneficiary, and the entire ecosystem.

Sweat Your Assets, Sweat Your Impact.

 

Financial Wisdom + Discipline = Financial Freedom

 

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