How ‘The Black Tax’ Affects Intergenerational Wealth Transfer

Many times people feel guilt or shame around how much money they don’t have. For those who have made it professionally and financially, that guilt or shame may not disappear. It may transform into guilt for having too much. The change in financial status may straddle between feelings of pride demonstrated through extravagant purchases or lifestyle upgrades, and a sort of survivor’s remorse. This may prompt feelings of guilt internally, while a simultaneous expectation exists to take care of the financial burdens of those close to them. This is especially true in the Black community in an occurrence referred to as “The Black tax”.

What Is ‘The Black Tax’?

The Black Tax refers to a practice where a successful Black individual supports members of their immediate and extended family financially. Studies link this practice to South Africa however, it is a common occurrence among first generation college graduates and high-income earners in the US who feel obligated to add the financial burdens of members of their families and communities to their own.

While seemingly beneficial to those who are struggling, this puts a tremendous amount of pressure on the individual to not only maintain their status financially, but to grow it with very few resources which can increase financial stress or financial anxiety. It restricts movement and a willingness to take on financial risks because failure financially for the individual has a ripple effect on those they support.

The ‘Black Tax’ can be particularly overwhelming when you add in financial trauma to the mix. A high income doesn’t necessarily equate to a strong understanding of money management or financial psychology. The pressure to demonstrate wealth, hide wealth, or simply give it all away can lead those who have achieved a level of financial success down a path to financial ruin. This not only has an impact on the individual but on dependants and future generations through the disruption of intergenerational wealth transfer, contributing to an already wide wealth gap.

What About The Community?

An argument can certainly be made that it’s one’s duty to give back to the community they come from financially or otherwise. It’s a practice seen across cultural and ethnic groups around the world. The problem arises when there is a disproportionate distribution of the demand mentally and financially to support community clusters on an individual level. Especially if the financial support being given is not supplemented with educational devices to encourage the duplication of success.

Systemic and racial exclusion has already created a gap in Black wealth through practices like redlining, where Black homeownership was not permitted in certain appreciating areas. But cultural clashes between individualism and collectivism create skewed positioning on what giving back looks like and just how much should be given.

In the Black community specifically, there are more examples of capital injection flowing backward to support parents, grandparents, and members of the immediate and extended family, than there are examples of capital flowing downstream in the form of:

• Downpayments for houses;
• College tuition;
• Or inheritance.

Juggling priorities related to healthcare and retirement expenses for aging parents while planning for their own futures can make prioritizing future wealth transfer a distant reality. Should notable wealth be accumulated despite these challenges, there may be oversights in the proper planning or positioning of said wealth in ways that minimize erosion to the total wealth in the transfer to heirs.

This failure to engage in proper estate planning can make it difficult for heirs to access whatever assets are left behind creating another barrier to downstream intergenerational wealth transfer and leaving whatever is left to be picked over or fought for by surviving heirs.

Don’t Sell Grandma’s House

The idea of not selling grandma’s house has become a popular theme within conversations around generational wealth within the Black community. It speaks to the intangible impacts of the Black tax as well.

Having made it professionally and financially sometimes comes with an official position of leadership within the family where all financial decisions are at least run by the individual. Regardless of whether specialized financial knowledge is present or not, the individual is expected to have an answer on both simple and complex matters relating to financial decision-making. This can create dangerous positioning for the individual who may or may not admit to their lack of knowledge or qualifications on some topics and may make decisions simply because they were placed in a position to do so.

Delegation of responsibilities related to family land or real estate may result in the premature sale of that property if only to relieve the burden of responsibility and see an immediate return. While not always the case, the individual may not have the foresight to play a long game and thereby securing wealth for future generations.

Ensuring The Intergenerational Transfer Of Wealth

If you or someone you know is paying the ‘Black Tax’ the following is a list of ways to ensure the intergenerational transfer of wealth:

• Establish boundaries;
• Share in your knowledge, and learn more;
• Have an estate plan;
• Get financial therapy;
• Build community.

Establishing boundaries should be approached the same way putting on the oxygen mask is during a flight. You need to help yourself before you attempt to help someone else. Some will see your professional and financial success as the oxygen mask but only you know what position you are in to give and how much. Establishing boundaries may look like allotting a certain amount of your income per month towards supporting your family and community. Making sure that amount aligns with your values is important as you may want to give more or less depending on what’s important to you.

Sharing your knowledge also includes sharing what you don’t know. Teaching and learning alongside members of your community is a nonfinancial way of giving back which can also duplicate success within your family and community, and ensure wealth creation or preservation.

Having an estate plan will direct the assets you accumulate to your intended heirs and can save on time, fees, and frustration depending on how well structured it is and the total assets included.This can be as simple as a will and life insurance policy or as sophisticated as a trust. Consult a qualified estate planning attorney for more information.

Your attitudes and beliefs about money are cemented in childhood. These beliefs may be rooted in financial trauma that can have an impact on your relationship with money. Getting financial therapy can not only help you come to terms with your practices and beliefs around money, but can also provide support in establishing positive money habits and goals.

Building a community is different from existing within a community. By building a community you are intentional about surrounding yourself with like-minded and supportive people who may share in your experiences and obstacles. This can help eliminate the feeling of being isolated and can facilitate the exchange of ideas and accountability, which help you to ensure the completion of the other items on this list.