Personal-Finance

Taxing family issues

2017-09-18 17:37

A few weeks ago, I attended a breakfast with a group of women, where we landed up discussing so-called black tax.

Irrespective of demographics, most South Africans are supporting family members in one way or another. White South Africans are most likely supporting parents who have not put enough money aside for their retirement – the Old Mutual Savings and Investment survey found that more than 50% of white respondents either plan to or expect to support their parents or other family members.

For black professionals, the burden is greater because their support often extends to siblings and extended family. Of those surveyed, 80% expected to support family members.

When it comes to money, universal principles apply irrespective of gender, race, culture or income. In all cases, those supporting members of their extended family need to find a way to juggle this responsibility with supporting their own family.

I want to share some of the conversations we had at that breakfast, as well as the stories of readers and friends who have had to find a way to strike this balance.

The respectful relationship 

Nazeer’s parents did not have enough money to put away for their retirement. They always struggled to make ends meet, but they invested in his education. Today, Nazeer is a successful professional and his single goal is not to end up like his parents.

Creating wealth from a young age was important to him. He delayed starting a family and lived with his in-laws until the young couple had enough money to put a significant deposit down on a home.

However, he respects the fact that he needs to support his parents. Rather than just being an ATM, he provided his father with capital to start a small fruit and veg shop, and also gives him advice and support for the business.

This has allowed him to maintain a healthy relationship with his father, who is not relying on his son for monthly handouts. Nazeer still “spoils” his mother by giving her money each month to spend on herself. He feels that she did so much for him while he was growing up that he really enjoys being able to provide for some luxuries in her life – he recently bought her a second-hand car so she could have some independence.

His support for his parents is built into his budget and financial plan. It has not affected his goal of building financial independence, but it has meant he has forgone some of the luxuries his colleagues may enjoy. This does not bother him because he gets a great deal of satisfaction from seeing his parents cared for.

The idea of being an enabler rather than a provider came up as a central theme at the breakfast. Those who found a way to get their family to help themselves rather than rely on them solely for income had a far healthier relationship with their family, felt less resentful and could also improve their own financial wealth.

In some cases, the support was providing some capital for a small business, like helping them get finance for an Uber car. For others, it was using their networks to help them find work. The best relationships are those where giving is a joy, rather than something that is resented.

The abuse relationship 

Nicky is a young black professional whose mother places a huge amount of guilt and financial strain on her. Her mother believes that now that Nicky has a job, it is her daughter’s duty to give her the life she has always wanted – she expects new clothes and overseas trips. When Nicky tells her she cannot afford it, she gets angry and says she is embarrassing her in front of her friends.

This is clearly not a healthy relationship. When a parent believes it is a child’s duty to repay them for what they have provided (with interest!), the parent is forgetting that raising and educating a child is actually their parental responsibility.

My son has a disability and, as a result, we have spent an enormous amount of money on his education and therapies. I remember questioning the rationale of all the money we spent and the impact on our own finances. My husband replied: “We owe him the best education we can afford.”

We are not doing this because we expect him to pay us back one day, we are doing it because it is our duty as parents, and becoming his parents was our choice.

A parent who expects their child to suffer financially to meet their expected lifestyle needs is not being fair. As one of the women at the breakfast said, she was only able to start looking after her own finances when she learnt how to say no to unreasonable demands from her family.

In Nicky’s case, she needs to set boundaries with her mother and work out how much she can afford to give her each month, and possibly even bring in a financial adviser as a mediator. The mother, in turn, needs to live within her means.

Investing in the future

Palesa has two younger siblings and she pays for their education. This means she cannot put much money away for her own future at this stage, but she sees their education as an investment.

Firstly, with an education, they are more likely to become financially independent. Secondly, once they start earning, they will be able to help her support their parents. Once her siblings are financially independent, she will have more disposable income to start looking after her own future.

Education is definitely a family tax worth paying, but it has to go both ways. If you are paying for someone’s education, the student has an equal responsibility to work hard and ensure they get the most out of it. Partying while someone else is funding your education is disrespectful and abusive.

A financial adviser once told me about her own approach to tough love.

As a single mother, she stretched herself financially to educate her children. She had a daughter who was studious and applied herself at university, but her son was another matter altogether. He spent most of his first year at university partying and drinking. When he failed his course, she refused to fund his education further. It was now up to him to support himself.

Faced with the prospect of paying his own way, he decided university was not for him and found a job. Education can become a bottomless pit if you do not set boundaries.

Apart from money, you can also provide support. Use your access to information to ensure the student is studying an appropriate course that will help them get a job. Help them get work experience while studying by guiding them when they apply for internships.

Ask your employer if the student can spend time in the office to see what a corporate environment is like. Any work experience, even unpaid, will give them an edge when it comes to entering the workforce.

In South Africa, family tax is a reality, but it can also perpetuate a culture of dependency, which is not sustainable for the provider or the recipient.

Accept your responsibilities, but set your boundaries and find grace and joy in giving.

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October 15 2017