Breaking the inequality cycle

By: Munya Shumba, Financial Advisor, Discovery Limited

There are no parents on the face of the earth that look at their new-born child at birth, wrapped up in soft baby blue or pink blankets, look at each at each other lovingly and say, “honey we did it, look at our retirement plan!”

The excitement of watching their baby start to walk, or go to high school, isn’t the euphoria of watching their long-term investment evolve right before their eyes. Moms don’t sit at the salon discussing between themselves how to negotiate a pensioner’s allowance with their children once they start working. The real conversations are always about outdoing each other as parents as their kids continue to add to their list of achievements.

Parents globally have one mission and one mission only: to raise, good obedient children, and to prepare them as best as they collectively can to become good citizens of the world.

What goes wrong?

As a financial advisor, I can also tell you client financial behaviour backs my theory up as well. At the tail end of a conversation congratulating a client on the birth of a new-born, every single conversation is followed up with: “Munya, we need to put something together for the child.” And by this, they’re normally referring to an investment policy, increasing their life insurance, or updating their Will. Not once, ever, has any parent expressed their relief at securing their retirement plan.

So, what changes? Where does it all go wrong? How can there be such a complete 360 for a parent to be perfectly aligned to doing everything humanly possible to give their children the very best to now have an expectancy to be supported by them? Were they pretending all of those years?

Of course not. However, if they find themselves in this position, it’s probably because they spent so much time, and every ounce of their resources looking after their children. Whilst innocently putting their own long-term needs last, often through ignorance. In South Africa, this role reversal is commonly labelled as “black tax”. Contrary to what the name may suggest, labelling it a black tax by no way means that supporting either your direct or extended family is a “cultural thing”. Being born black, doesn’t mean you’re subscribed to this “tax” from birth, and if you’re not black, you are by no means guaranteed to have escaped it.

It's not a “black thing”

If race isn't the sole determinant of this “tax”, what is? In South Africa, my research does suggest that the overwhelming majority of blacks who work support some of their direct or extended family in some way. But not all. Interestingly, many people from diverse racial backgrounds support their parents in a similar way by either paying groceries every month, paying for their parent’s medical aid, or just a general monthly allowance to help them get by. They obviously didn’t call it black tax.

This pattern isn't exclusive to South Africa; I spoke to friends from other countries, mainly in South America. Many support their parents, siblings and in some cases their extended family members too. Many shared stories of their family members being hospitalised and turning to them for support. Two common threads resembling black tax emerged: the role of employed or financially stable individuals within the family unit; and quite crucially, a lack of concern or sympathy for whatever else was going on in their personal lives, especially marital issues because the overall feeling was that “at least you can still make more money”. This dynamic often imposes an emotional burden, compelling individuals to prioritise family support even at their own expense.

While they didn’t call it "black tax" my South American friends, experienced exactly the same phenomenon as many South Africans do: its essence remains consistent across regions and reflects broader socioeconomic inequalities than having anything to do with race.

Clearly, it’s not a “black issue” even if it sometimes feels like it in South Africa. The common denominator is simple. If your parents are self-sufficient, regardless of your race, you most likely don’t support them, and if they’re not, no matter what race you are, in some way, you probably do.

It’s important to get the obvious out of the way. Widely speaking, even 30 years into democracy, there remain largely financial inequalities between black and white people in South Africa. On a large scale its grossly unfair to compare black and white households in this nation and have an expectation they are both as financially robust and astute as each other. It’s impossible to eliminate the devastating effects of generations of skewed development and discrimination in three decades.

Breaking the inequality cycle

In 2016, a study highlighted the substantial racial wealth gap, with typical Black households holding less than 5% of White household wealth. This is evident from a history where one race had a century-long head start, accessing education, employment, and wealth-building opportunities, while the other faced systemic barriers, effectively standing still. This isn't about dwelling on the past but recognising its impact on the present and acknowledging the ongoing need for equitable opportunities.

My experience in financial services has deepened my understanding of risk, investing, and estate planning. Although already having a good understanding of the industry, I've realised there's always more to learn. Even after nearly a decade, I'm constantly refining my expertise.

Before entering finance, I was already ahead thanks to my parents' success. But after ten years in the industry, my knowledge has grown exponentially. This raises questions about the financial literacy of the majority of Black Africans who haven't had similar opportunities for education and exposure to wealth-building strategies.

Making informed decisions

The real "black tax" is the lack of financial education. With better understanding, individuals, regardless of race, could make more informed decisions and plan for a prosperous future. Without this knowledge, how could Black parents forty years ago have known the power of investing even a modest amount monthly, potentially leaving a substantial inheritance for their children? Financial education must be addressed to truly tackle the roots of the "black tax" phenomenon.

There are many other factors that contribute to inequality, including unemployment, crime and load shedding. These issues pose significant risks to wealth preservation for everyone in the country. Without improvement in these areas, financial education alone won't have the desired impact.

The backdrop of that means black tax isn’t going anywhere anytime soon. However, regardless of race, if you pay "black tax" and wish to break this cycle for your children, consider these three points.

1.     Start early

Prioritise long-term investing by starting early with whatever you can afford and staying consistent. The roadblocks that existed decades ago no longer exist today, and through a few clicks online, and small sacrifices each month, you can secure a bright future for yourself by deciding today.

2.     Know your limits

If you’re a giver, you must remember to know your limits because takers don’t. It is OK to say “No”. In fact, it is essential to say “No” and to say it fairly often, otherwise, you will find that you will be unable to set aside funds for your retirement and take care of your own old age. There will always be more people in need than you will be able to care for.

3.     Budget for it

Make your “tax” a part of your monthly budget. Decide an amount upfront of what you are prepared to give to others in need. This could be similar to tithing in which people opt to donate 10% of their income to their religious institution or to a charity each month or it could be in addition to that. But decide on an amount that you are comfortable with, that is within your budget, that still allows you to save for your needs and requirements. And then stick to it.