Recently I had the fortune to attend a lobola celebration and the misfortune to attend a funeral on consecutive days. Both events went well and showed the benefits of having an extended family network for support in both celebrating life’s triumphs and helping mourn losses. The experience has made me reconsider the truism that Black Tax reduces our ability to grow our wealth. The negativity around the term and our short term thinking prevent us from recognizing the economic opportunity that lies within and the long term benefits we derive from the social safety net that Black Tax creates.

First, a definition of Black Tax, this is where black people are expected (required?) to financially contribute to their family regularly. This contribution can come in wide variety of ways from paying school fees, paying for the upkeep of parents/grandparents, housing cousins, contributing to funerals, contributing towards lobola, the list continues. This form of tax can be a particular burden on those who are seen as the most successful in the family, and often times all expectations are on that one individual to financially manage all things that may befall the family. The term has become a pejorative because many of the individuals who pay this “tax”, have come to see their contributions as foregoing their own financially wellbeing while benefitting those less responsible.

Let’s think about regular insurance for a moment and compare it to Black Tax. Insurance is known to be a grudge purchase but necessary for our financial wellbeing. We commonly understand that a small contribution each month allows you to better manage a large shock, such as a car accident, stolen property or death. What if we had the same perception around Black Tax? First off we remove the pejorative and call it what it is, Black Family Insurance and we start to think of each monthly contribution as helping prevent the depravity for the greater family. Imagine further, if this was a financial product, Black Family Insurance would work in the same way as other short term insurance, you have regularly small monthly contributions that provides for your family in the case of unexpected (or expected) expenses.

By changing our perspective on the matter, it would allow us to recognize the vast market opportunity there is for a product that satisfies this very need. Let’s for a moment take the estimates that the black middle class in South Africa is made up of 4 million people, for conservatism let’s say 50% of those pay just R500 in Black Family Insurance per month. That would mean that there is R1 billion in monthly transfers related to Black Family Insurance each month. Therefore, conservatively R12 billion per annum is going towards helping families. Now multiply this throughout the African continent, because this same system is prevalent in just about every community. The market opportunity is immense, and tangible.
If financial services companies changed their mindset they would recognize the opportunity available to them. Actuarial science would certainly be able to come up with a model that allows individual group contributions that will sufficiently payout as required. As an example of how this could work, imagine if in each company this Family insurance was an automatic deduction from each employee of just R5. In times of need instead of an envelope going around requesting contributions during an individual employee’s time of crisis there simply was a payout from the Family Insurance Fund. Think of the convenience and benefits all those involved would enjoy from such a system.

As well as the market opportunity, let’s remember the social safety net created through the Black Family Insurance system. How many of us have actually benefited from the system, whether as siblings who received school fees from a big sister in the city or were part of a grandparent headed household with few other sources of income? How many funerals have allowed a dignified send off for a person who did not have the means to provide themselves with one? How many marriages would have been delayed or not occurred because fathers and brothers did not come together to pay lobola? And let us also not forget that during apartheid and colonialism, with little if anything in government social support, this was the only social safety net available to us. The very system has benefited our community immeasurably. Today, as our society changes we have started to look at it negatively. It is true that perhaps we may have more individual millionaires if such transfers did not occur but at the same time we probably would have more deeply impoverished families.

Black Tax is the very embodiment of Ubuntu that we can and should all participate in. I challenge each of us to relook at our narrative and look at Black Tax with fresh eyes and see it for what it is: family Insurance, our insurance, Ubuntu Insurance.

This article was written by
Zviko Mudimu
Founder and Executive Director
AFI Network

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Challenging Stereotypes is a new series of articles written to challenge our thinking around personal finances in the African context. The articles are written as part of a new initiative called Africa Financial Inclusion Network which is looking to expand the conversation around financial inclusion on the continent.

We welcome contributions from those who are interested in sharing their perspectives. Please send you’re your articles to contribute@afi-network.org.