A Nigerian's guide to dealing with black tax

Adanna recently graduated from University. After her NYSC, she luckly got a job in high brow Lekki, Lagos, that pays her #100,000 a month. With the rising inflation and cost of basic necessities, she instinctively starts a baking business and now does social media management on the side to augment her salary and pay her bills. On some months she manages to save after settling her major bills. On other months, to paraphrase a twitter post I once came across, "na her savings dey save her".

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While having to grapple with her money problems, she notices something. The calls for money from home never ceases to come. Just last month, she received a call for money because her distant relative was sick and now, she just dropped a call from her cousin who is requesting for money to get a new phone. 

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On a normal day, these requests are what she would grant without thinking twice but she's really worried. She's struggling to save and would want to start investing some of her income. She has always heard of black tax and how it impairs one's abilities to save, invest and grow wealth. Now she's wondering, "how can I manage my finances in such a way that I can help my family while still having some savings and investments?"

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The above scenario is one that almost every young Nigerian has at least heard of. And some have experienced. Unplanned "billings" from family members are a common occurance in Nigeria. 

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As a young working Nigerian, there is an unwritten rule that you ought to cater for the needs of your immediate or extended family members who are not well-to-do. While some people call these billings black tax, others call it responsibilities. Whatever you choose to call it, one thing is for sure, at a point, you have wished that it would stop or at least pass you by.

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WHAT IS BLACK TAX?

Black tax is simply the money younger members of a family spend to support older or underprivileged members of their family. It is called black tax because it is a practice prevalent among black families across the world. Whether in South African (where the term originated) or Nigeria or even Jamaica, black tax is present in most families.

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In Nigeria, the reasons for the practice of black tax are not far fetched. Firstly, the Nigerian society is largely a communal one. This means that one person's problem is everyone's problem. 

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It is often said that it takes a whole community to raise a child. In return, when the children are mature enough to cater for themselves, it is expected that they would take care of the elders who took care of them till maturity and who are now too old to cater for themselves.

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This system of communal living is our own version of the social welfare obtainable in the Western societies. In the Western societies, the government provides older and underprivileged citizens with welfare packages such as food stamps, shelter, medicare, old people's homes e.t.c. 

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With this, there is no need to ask (or tax) family members for assistance because the government already provides that. In Nigeria, the idea of government funded social security schemes are completely alien to our society. After all, why bother the government for social security packages when "our daughter", Amaka lives in Abuja, the FCT? When she was a baby, we carried her on our backs and now that she's a big woman (in every sense of the word), she ought to send some money back home."

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Again, the level of poverty in Nigeria is at an all time high. The World Bank predicts that by the end of 2022, 4 out of 10 Nigerians or more than 95 million Nigerians could be in extreme poverty if the economy is not quickly rejigged. With the current rise in inflation and the high cost of food items and other basic necessities, it only means that more Nigerians are slipping into poverty.

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For most affected people, the only way to survive will be to rely on well-to-do family members for stipends and financial aid and an easy group to rely on are younger working family members with "little or no responsibilities". 

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While this makes sense to the dependants, things are not so rosy for they younger working class folks. They all want to grow their wealth by saving and investing, but for most of them, their salaries and incomes remain static while the cost of basic necessities keep rising as a result of inflation.

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Don't get me wrong, black tax is essentially not a bad practice. There is absolutely nothing wrong with helping family members out when we are opportuned to and black tax is just a reason among a number of other reasons why we are unable to grow our wealth. 

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However, we can all agree that if we are able to effectively manage how we deal with black tax, it will mean that we have more money to save and invest, settle more pressing bills or at least, prevent us from running into debts.

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HOW TO DEAL WITH BLACK TAX.

Since it is clear that young Nigerians can not prevent (or for most people, escape from) black tax, the best one can do is to strategically manage how to deal with it.

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If they do not manage black tax vis a vis their finances, theyrun the risk of expending their incomes, not having investments to fall back in upon their retirement and thus continuing the circle of dependency and black tax.

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To effectively manage black tax, we have a set of advices and practical steps that you can follow to help you on your financial journey:

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• Setup an Emergency Fund for Yourself

Since 2020, the year of Covid-19, one statement we have constantly heard is "we are living in unprecedented times". And yes, that is the truth. The Covid-19 negatively impacted the economies of many countries, Nigeria included. Many Nigerians lost their jobs and incomes during that year. Shortly after, we are faced with a painful inflation that makes our incomes seem so grossly inadequate.

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The safest thing anyone can do is to set up an emergency. Ideally, an emergency fund should add up to 3 to 6 months worth of one's living expenses.

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The emergency fund acts as a safety net in cases of emergencies such as a sudden loss of job, urgent medical care e.t.c.

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• Be Strict With the Portion of Your Budget Earmarked for Black Tax. 

While preparing your monthly budget, set aside funds that will be used to take care of any expenses that fall under black tax. Be realistic about the amount you wish to set aside taking into consideration how dependant your family is on you and how expensive your monthly recurring bills are. Also take into consideration the fact that you have to save a portion of your salary too. 

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Peradventure the amount of money earmarked for black tax is not enough to take care of the expenses for that monthly, you would have to wait until the next month where you will have some money budgeted for such expenses once again.

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• Have Insurance for your Parents

One way to guard against emergencies is by setting up insurance plans for your parents to cover unseen expenses. Vehicle insurance, home insurance, fire insurance are examples of insurances to subscribe to for one's parents.

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A health insurance is one of the most important insurances one can get for one's parents. As people get older, they stand a higher risk of contracting life threatening illnesses. A popular saying is that "the average Nigerian is one sickness away from poverty". This is because most Nigerians can not afford the cost of medical treatment or emergencies.

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Having health insurance for one's parents means that in a case where urgent medical care is needed, one would not have to expend all of his (or her) available income to care for their alling parents as the insurance company will cover all or most of the health care expenses.

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• Educate Your Dependants to be Financially Independent

Not everyone enjoys being dependant on others for survival. Infact, most people would love to work for their own money. It is important that when we recognize dependants who are willing to be financially independent, we help them on their journey to becoming so. 

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Refer them to job openings, enrol them in financial literacy classes, encourage them to start their own businesses and be willing to support their businesses in whatever way you can. Remember, two broke people cannot help each other and the words of a popular Nigerian musician "we rise by lifting others". Your disposable income will literally rise when you lift others from their position of dependency on you.

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•  Learn to Say No

As harsh as it might sound, sometimes, the only way to deal with black tax is by saying no. If after careful evaluation of the reason why the money is needed, you deem it unnecessary, you have the right to say no. 

If the money is needed for unnecessary events like an unbudgeted party, unnecessary change of gadgets or the likes, as hard as it sounds, it's easy… say no.

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While learning how to manage black tax is not easy, it is surely one of the best things a young person can do for his (or her) finances and especially at the early stages of one's career. It increases one's chances of growing wealth and having healthy investments to retire to. Most importantly, it is a sure way to end the circle of dependency and black tax.

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