From obligation to opportunity: How ‘black tax’ can co-exist with your retirement dreams

Across Africa, many professionals find themselves shouldering an unwritten but deeply ingrained responsibility: financially supporting extended family members. In Ghana, this practice is known as “Black Tax,” a term that has gained prominence in recent years to describe how the first generation of working professionals often becomes the primary safety net for relatives. While some view it as a financial burden, it is, in fact, a longstanding social contract that predates the modern economy.

Historically, Ghana’s extended family structure served as the country’s first pension system. In pre-colonial times, successful members of the community were expected to care for the elderly, widows, orphans, and those facing hardship. During the colonial and post-colonial periods, as formal state welfare systems remained limited, this practice became even more critical. Young people who moved to the cities sent money home to fund siblings’ education, support farming activities, and meet family needs.

This tradition remains strong today, particularly among Ghana’s growing middle class. According to the 2024 Old Mutual Financial Services Monitor, financially assisting relatives has become the second-highest priority for working Ghanaians, up from fifth place in 2023. Nearly 40% of the working population is part of the “sandwich generation,” providing support to both children and adult dependents, often despite stagnant incomes. Fifty per cent have adult dependents, and a quarter care for children who are not their own. To meet these demands, many diversify income streams: 21% are poly-jobbers with multiple sources of income, while nearly half run small businesses.

Yet, these sacrifices frequently come at the expense of long-term financial security. While 83% of Ghanaians acknowledge the importance of retirement planning, only one in three actively save toward it, and just 9% express strong confidence in having enough funds for retirement. This means that generous contributors may reach their 50s or 60s, having supported their families for decades, but with little to sustain themselves in later life.

This tension between fulfilling cultural expectations and securing one’s own future raises an important question: can the two coexist? The answer is yes, but it requires reframing Black Tax not as an obstacle but as a key component of a well-designed financial plan.

Turning Black Tax into a Strategic Lever

Supporting relatives should not be seen as a drain on personal finances but as a predictable commitment that can be managed alongside wealth creation and retirement planning. Four strategies can help reframe this duty into an opportunity:

Set Boundaries with Compassion

Family support is important, but it must be sustainable. Establish a fixed monthly or quarterly budget for family obligations, just as you would for rent or utilities. This provides predictability and prevents urgent requests from disrupting savings plans. Setting boundaries does not mean saying no; it means being intentional about how much you can give without jeopardising your own future.

Build a Family Empowerment Fund

Pooling resources with siblings or cousins can spread the financial load. A shared emergency account can cover unexpected expenses like hospital bills or funeral contributions. These funds can also be used to invest in productive ventures, such as small businesses, which help relatives become financially independent over time.

Transfer Financial Skills

One of the most effective ways to reduce future demands is to empower relatives with financial literacy. Introducing them to credit unions, savings groups, and cooperative investment schemes can turn dependence into collaboration. Setting group goals for education or business can create accountability and reduce the reliance on a single family member.

Align Giving with Your Long-Term Plan

Treat family support as a non-negotiable line item in your financial plan. The 50/20/30 budgeting rule provides a useful framework: allocate 50% of income to essential needs (including a fixed family support allowance), 20% to retirement and investments, and 30% to lifestyle and discretionary spending. This approach ensures that generosity does not come at the expense of future security.

Benefits of a Structured Approach

Embedding Black Tax within a formal financial strategy has several advantages. It turns giving into a planned, predictable activity rather than an ad hoc source of stress. It protects retirement and investment goals by ensuring that contributions to pension funds, mutual funds, or other investment vehicles continue without interruption. Over time, this creates a sustainable cycle of generosity that can extend even into retirement, allowing individuals to remain a source of support for their families without compromising their own dignity and independence.

Perhaps most importantly, it enhances confidence and peace of mind. When financial support is part of a clear plan, decisions about when to say “yes” and when to decline are easier to make, removing guilt and reducing the emotional strain of family requests.

The challenge of balancing Black Tax with retirement planning is not unique to Ghana, but it is particularly urgent given the country’s demographics and limited formal pension coverage. Only about 19% of workers contribute to SSNIT, and pension payouts are often too small to maintain a comfortable standard of living. This makes personal savings and investments critical for retirement security.

The path forward lies in harmonising generosity with prudence. Consulting a qualified financial advisor, formalising family support budgets, and involving relatives in collaborative savings initiatives can turn what feels like an obligation into a stepping stone toward shared prosperity.

Black Tax, when handled strategically, can become more than a cost; it can be a mechanism for building generational wealth. By planning carefully, today’s professionals can support their families while ensuring that they, too, can enjoy financial freedom in retirement.

DISCLAIMER: The Views, Comments, Opinions, Contributions and Statements made by Readers and Contributors on this platform do not necessarily represent the views or policy of Multimedia Group Limited.

DISCLAIMER: The Views, Comments, Opinions, Contributions and Statements made by Readers and Contributors on this platform do not necessarily represent the views or policy of Multimedia Group Limited.