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Only stupid people give to charity

“Only stupid people give to charity, I give enough with my taxes” – one of my coworkers said,  during lunch one day, when we were discussing the holiday fundraising in our office.

I just smiled and said nothing, but it certainly made me think. By nature, we humans are motivated by personal and material payoffs. We are inherently selfish, that is how we have dominated this planet.

But plenty of us give to charities, volunteer our time, blood, goods. Why? Why would a person decide to sacrifice part of his or her material payoffs in order to increase the well being of another? Sometimes the well being of complete strangers or another country?

The Giving USA foundation estimates that Americans gave $290 billion to charity in 2010. That is a lot of money for a Homo economicus! What motivates people to give?

Going back to our roots will remind us on WHY we give and allow us to figure out HOW we can give efficiently. Not just efficient from the charity’s point of view, but also to maximize the value we get from charitable giving.

Why we give?

There are several theories as to why we give to charities.

The Warm Glow : Donors derive an internal satisfaction, a “warm glow”, from their giving. These donors don’t mind being entirely anonymous. They don’t view the voluntary charitable giving and involuntary giving through taxes as equivalent.

Personal identification : This category is where a lot of donors I personally know fall. We might have lost a loved one to cancer, so we feel compelled to help other people with cancer as much as we can, or we might feel close to a community that has suffered a calamity, like Hurricane Katrina. We can relate to the victims and feel we should help out.

Prestige : These donors give mainly in order to show their wealth. Thus, they want to be recognized and want to be among the bigger donors. Economist William Harbaugh showed that when the names of donors are publicly announced and the gift amounts are given in categories (Gifts $500-$999 as “sponsors”, $1000-$1999 as “patron” and so on) most contributions were exactly the minimum amount required for inclusion in each category.

Cultural/Social/Society Influence : Tithing and other religious giving fall in this category.

Social pressure : These are the individuals who would rather not give but dislike saying no.

Perfect Altruism : These donors are similar to “warm glow” donors, but they think of a charity as deserving $1000 so if someone donates $900, they are perfectly fine with just donating the difference of $100. They don’t feel compelled to give more, where as the warm glow donors would much rather prefer to donate the entire $1000 themselves.

Tax benefits : There are a small category of people who give only to take a tax deduction. I personally know 2 people who gave to the Haiti earthquake cause because they believed that they will get it back in taxes. And they don’t even itemize! I initially didn’t want to include this category, but studies have proved that when a charitable organization mentioned that the “donations are tax deductible” the contributions increased dramatically.

How can we make our giving smart and efficient?

It is not only important to give, but to give smart.

So based on what motivates us, we can not only be efficient in giving, but we can also maximize what we get out of charitable giving - life satisfaction or spiritual enrichment or whatever value that drives you to give.

Personally, I fall in the personal identification category with some warm glow sprinkled on top of it.

If you are a warm glow donor, you can maximize the value by

  • Doing your homework : The more money that goes directly towards the cause, the more internal satisfaction you will get. So make sure you find out how the money is used. Ask the charity about their impact and the results. Seeing the results of your contribution will make you more happy.
  • Including philanthropic giving in your budget : You might be tempted to donate more when you are asked because you feel guilty to not give. Set aside a portion in your budget every month for charitable giving. Don’t feel compelled to give more than what you budgeted. Think of all possible ways to help without giving money.

If you donate because you can personally feel connected to a cause -

  • Involve your family : You might feel compelled to give to the local women’s shelter but does your spouse feel the same way? Have you sat down and decided on a charity allocation? What are the values of the entire family? How much will go to what cause? It is important to sit down and figure this out.
  • Pick 1-2 charities and give them the most : As the most important thing in your charitable giving is the cause, pick 1-2 charities that serves the cause and give them most of your money. There are a couple of reasons for this – (1) $1000 to one charity will be put to much better use than $100 to 10 charities, the processing fee of the $100 itself will take a good chunk out of it. (2) Reduce the junk mail! The lower the amount, the charity benefits more by selling your information than actually using the money. (3) They listen to you.
  • Study your charity but with context : I use CharityNavigator and Guidestar to research the charity of my choice, but I don’t take them at face value. For example, St. Jude’s children’s hospital is a major recipient of mine. Yes, only 87 cents out of $1 goes to the cause, but its a “hospital”. Good doctors will cost more money, operating a big hospital and all the staff costs money. Personally I feel a hospital is doing a much better job if they only spend 13c for administration vs an organization that functions solely as a charity spending 5c for administration.

If prestige motivates you

  • You do have a budget for giving and stay within that budget right? As with other areas of spending, keeping up with the Joneses will never do you any good, even if you are doing it for a good cause.

If social pressure gets to give more

  • Learn to say no. For your own good and for the charity’s good, just say no. If you don’t say no, the charity may continue to bug you and you’ll feel bothered, and their time will be much better spent reaching other potential donors.
  • Ignore the “sob” stories.
  • If you feel guilty, give by other means, time or blood or even just shopping,browsing and playing games online.

If you are the perfect altruist

  • Never give to a third party solicitor : If you give $100, the third party will take a cut and the charity won’t get the full amount. Always donate directly to the charity to give them the full value.
  • Ask what percentage of donations being raised is paying for fundraising expenses : Most state laws (at least CA state law does) require them to disclose this fact when asked.
  • Watch out for copycat or similar-sounding names.

If you are giving for tax purposes

  • NOT all charitable giving is tax deductible. If you don’t take an itemized deduction, charitable contributions mean nothing in terms of taxes.
  • Understand what the tax deduction means : If you are in the 30% marginal tax bracket, that means for every $1 you give, the price to you is 70c and the Government pays the rest, 30c. So you still spent 70c out of your pocket. It is good to give, but give because you want to give not just because of tax benefits.
  • Make sure to get a clear receipt with the amount and the charity’s name.
  • Make sure the charity is a 501(c)(3) non profit organization. Tax exempt is not equal to tax deductible.
  • If you receive a benefit because of your contribution such as merchandise, tickets to a ball game or other goods and services, then you can deduct only the amount that exceeds the fair market value of the benefit received.

And all of us should be

  • Proactive in our giving. As the charities get more desperate they will play with emotions, if we are proactive and decide what the plan is, we will be able to give wisely and maximize the enjoyment of giving.

Charitable giving fascinates me. Here is an infographic I put together with some interesting data. Did you know that charities collected more than the IRS in 2010?

Charity Infographics

Now, I have some questions -

  1. Why do you give?
  2. How important is anonymity/recognition in your giving?
  3. How important is the tax deduction? Will it swing the balance one way or the other?
  4. If you don’t give, why?

{ 37 comments… read them below or add one }

Sustainable PF

1. Because we care about organizations in our community that truly help people in our community. These small charities aren’t the big-wigs like Salvation Army or United Way. The regional AIDS network or the shelter for abused women – these orgs. need assistance and we think they do great things in our community, so we support them.

2. We never ask to remain anonymous but we also don’t request any recognition.

3. The tax deduction is very nice. In Canada we already pay a TON of tax (I pay 40% given my salary) so getting a bit back for donating is nice to get. Also, the deduction makes me feel like I am sending money where I feel it should go, instead of the govt decided who gets what money.

4. I can see your co-worker’s point Suba. Given how much I pay in tax, and the numerous social programs available to Canadians (govt, charity etc) I am already giving a bunch of money to charity – I just don’t know how much. This past year we did not give to charity although we almost always do. The reason? Well, this goes to your post last week about women returning to work (or not) after having a child. We do not know what Mrs. SPF is going to do so we are hanging onto our cash to build our emergency fund up. While giving to charity is noble one must take care of their own family first.

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Miss T @ Prairie Eco-Thrifter

I would also say the same things as SPF. In Canada here, tax is a major issue and the break is nice. I also believe in supporting local , small time charities who really need donors help. I often support these ones and not the big timers.

We have been working each year to give more and more to charity because we really do believe in it and what it can do. We want to use our money for good, not just for selfish gain. This kind of life is really important to us.

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Suba

I will have to look more into our local charities. I applied to volunteer for a few of them and its been 6 months, I never get a call back :( So I went with my usual charities for last year.

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Eric J. Nisall - DollarVersity

I don’t believe in giving money anymore. I’ve become too jaded by what I’ve seen at some places, with organizations using donations to pay for travel accommodations of celebrities to attend events (which they could and SHOULD pay for on their own), wastefulness on “administrative” expenses, commingling of funds allegations. It just all became too much for me. I prefer to make my gifts in time donations. It helps me to make actual connections with people, as well as ensuring that what I give is being used in the manner it should. Occasionally, I’ll sponsor a friend who is doing something like an AIDS walk or similar event, but that’s become more rare recently.

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Suba

I have gone back and forth with these issues Eric. (Even for general welfare programs as there are so much abuse) But you cannot deny there are legitimate charities that do good work. Should we be punishing the industry in general for a few (or more, unfortunately) bad apples?

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Eric J. Nisall - DollarVersity

Absolutely not, Suba. That is just how I choose to handle my desire to give back. Everyone can choose to do what they wish–as long as someone is willing to be selfless and give (whether it be money, non-monetary items, or time) I won’t say word one about it.

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saltinewarrier

You can’t take money with you. I don’t know what faith you are or if you have faith but when I’m on my deathbed, I want to know that I did everything I could to help others. It sickens me (especially in my hometown) to see children living in poverty. I make a decent salary and see no reason why I cannot buy toys for these children so they have a proper Christmas, or give a financial donation to the local churches so these families can have a Thanksgiving meal each year. I think you need to re-think your decision. Not all organizations are going to pay for the travel of celebs to their events!! Think local. There are MANY organizations and groups that are legit. Sure…volunteering time is fine, but there are enough older/retired persons who have the time for that. I have extra money and these families do not. I’ll keep donating until I’m no longer working…..then I might switch to volunteering my time and what money I have left.

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Kacie

My husband and I do tithe to our church (based on our gross) and we also sponsor a child through World Vision. We don’t do it to have our name on any sort of plaque. We do it because we feel called to bless others with what we have. Our giving has been a big blessing to us, actually!

While we don’t do it for the tax purposes, we do take our tax deductions for our donations. Why not?

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Suba

Kacie, I was talking mainly about people who donate “only” to get tax deduction and have no desire what-so-ever to give otherwise :)

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PK

A number of solid economic papers have studied the relationship of increased taxes and social programs and decreased charitable giving (in total, government spending displaced private charitable giving). All of that makes the generosity of the American people that much more impressive…

On a personal level, I do take the deduction, but my wife and I generally donate items and time to charity as opposed to straight cash (although we do that as well). Maybe it’s some combination of altruism and tradition – both of our families did something similar (and we’re both Catholic, so maybe that has something to do with it as well). Either way, no plans to stop now, heh.

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Marissa @ Thirtsyixmonths

I do a combination of both. There are 2 charities that are close to my heart, so I donate generously to them because I have volunteered with in the past and know how they operate. I also, sit on a few boards and donate my time and effort and making sure that the donations that are coming are aligned with the visions and values of each charity.

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Ali E

Also, just a note for those giving for the tax-deduction… the cost of raffle tickets are not tax deductible even if purchased from a 501(c)(3) non-profit organization.

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Jen @ Master the Art of Saving

1.Why do you give? I give because I want to help others and because it makes me feel good inside. :-)

2.How important is anonymity/recognition in your giving? To me, it’s extremely important to remain anonymous. I have other people drop off my donations because I don’t want to ruin it. The only way I haven’t been anonymous about it was posting my donation goal and updates on my blog last year. I was trying to share my goals and maybe encourage others to donate, but it kinda took away some of the joy by having others know. That’s why I’m not sharing it this year.

3.How important is the tax deduction? Will it swing the balance one way or the other? I don’t ever ask for receipts and ask the people who drop off my donation not to either. It’s just not a priority for me. I’m not sure if it would actually help our taxes or not, but I’m not concerned either way.

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MoneyCone

During the recent Haiti earthquake, apparently some missionaries were distributing bibles! Seriously? That was their priority? I’m very skeptical of religious charities and would rather donate to a neutral charity like Doctors without borders.

Charities like Susan Komen spend your donations on litigation. Sorry, I have little respect for such organizations.

Donate, but make sure your donations go toward a worthy cause. If the CEO of a charity is earning upwards of a million dollars, there is something seriously wrong. (That goes for all the mega churches as well.)

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Suba

That is one of the reason I refuse to donate to churches and overly religious organizations.

But I do have a question MC. I understand wasting money and million dollars is a lot for any CEO, but why do you think non-profit CEOs should earn less than their for-profit counterpart. I mean, they didn’t volunteer there, they chose that as a career. They have to do the same job as a corporate CEO, why should they be paid less? We also feel bad for non-profit employees who are paid less and want to bring it to market level, why is a CEO different?

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PH

From the Netherlands, but we have a similar system where charitable donations can be deducted from your income for tax purposes, leading to a contribution by the government of 42% in my case. (And 52% for people earning more than 57k euros per year).

1. Warm glow and a healthy imagination. (I feel connected to a cause quite easily).

2. I like anonimity, I’m a bit shy. It also helps a lot to reduce criticism on my income or on the way I spend money.

3. Tax deduction is important for me. I like the thought that I can almost double my contributions thanks to these tax laws.

Thanks for all the advice.

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Donna Freedman

I give because there’s need, and because I believe it’s the right thing to do.

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Jason

What Donna said…

And I hope your co-worker grows some perspective and finds a purpose greater than himself./herself.

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First Gen AMerican

I give because I believe in what the organization’s mission is and I truly believe that giving to those organizations make the community a better place to live. I’ve been giving a lot more to education programs now that my older son is school aged and I’m totally fine with that. I figure that rather than sending him to private school, I can send him to public school and fund certain enrichment activities there. I know there is no waste because I organize and pay for it all.

There are a lot of organizations that waste a ton of money but I am engaged in my community and I know which ones those are. Leaving everything to the government doesn’t always align with your own values. And if it’s something you believe in, then you should put your money or your time where your mouth is.

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Suba

I don’t like to hand over that control to Government either. I do wish they tax less though :)

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Hunter - Financially Consumed

I prefer to give my time and energy to worthy causes rather than money. I’m simply not in a position to responsibly give away our family resources when it’s likely that we’ll have to pay for our three children attending college.

How do people with consumer debt justify giving money away? I honestly wonder how people rationalize these decisions.

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Suba

I think it comes down to what is more important. I mean at any point of our life there will always be expenses right? College, retirement, a little more comfortable retirement fund, saving for down payment… There won’t be a point in life we will have too much so that we can give to others. A lot of people who are still in debt give to church. I don’t give to church or any religious institution on principle, but I guess they see this as a duty/tax of some sort…

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JT

That’s quite a bold statement by your coworker! I’m not much for charity – especially not the conglomerates we have now in giving – but I do think there is definitely a time and a place for it. I try to support a particular local cause, and have a special place reserved for Heifer International, which I feel is a great charity doing a lot of good, and actually providing a “cure” of sorts to poverty.

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Christa

I give to causes I believe in. Recognition isn’t important to me.

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Jenna, Adaptu Community Manager

1. Mix of personal identification and religious expectation.
2. Anonymity is important to me.
3. Not at all important.

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Donna Freedman

Forgot to add: I hope you co-worker never ends up destitute due to illness, job loss, etc. He (she?) might find himself on the business end of the bread line and be DAMNED glad that other people are stupid enough to give.

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Suba

Donna, he has 7 houses, enough money to retire and he is only 35. But I do hope he doesn’t fall sick or something, he will still be arrogant and I feel really really sorry for his wife, as she has to take care of him.

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PH

Some people will never understand anyone else’s point of view. It may be that, if he would fall sick, he would blame the government for not funding more research for his particular illness, and blame the government and people for not goving him more money because he’s ill and deserves it.

Ah well, who knows. Maybe he would finally understand a bit. I’ll give him the benefit of the doubt, for now. :-)

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Emily @ evolvingPF

1. I think I’m a combination of warm glow and religious influence. I also donate to friends who are fundraising because of their personal connections.

2. I don’t expect or seek any recognition from the causes to which I give. I do discuss some of my giving on my blog, but I do that because 1) it’s a PF blog and giving does affect our bottom line and 2) I like to encourage others to give as well.

3. To this point we have not itemized our deductions so we have never realized any tax benefit from our giving.

Suba, I am a little confused about your advice for the “Cultural/Societal Influence” category. Are you encouraging people who have been influenced to give by others to not give at all? It seems like you are characterizing “influence” as negative. I was taught that God wants us to be generous with our money and that giving is a form of worship; I give freely and joyfully but I was certainly influenced by my community and holy scriptures to develop that attitude. I know that some people might experience negative emotions due to this kind of influence, but it seems that you have ignored the upside.

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Suba

I didn’t give specific advice for social influence at all Emily. If people give due to their religious following or been influence by others, then at that point they personally feel connected to a cause, so all the points under that category (or any other category infact) still applies. I was just talking about social pressure. I mean if you really really don’t want to give but you are forced to give by church/friend/family/grocery store attendant… I really think you should learn to say no. People should want to see the good and give. People should feel connected to a cause and give. People should feel good about giving. Or after they initially give, they should feel good and then feel like giving by themselves. If you give freely and joyfully, then it is not social pressure. Pressure is a totally different than just influence.

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101 Centavos

Last year we gave direct assistance to a young family in need. I expect that we’ll continue with that support this year.

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Shaun Somers

I just wanted to comment on your interesting description of taxation as “involuntary giving”, as it made me chuckle. Somewhat of a contradiction in terms, isn’t it?

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John | Married (with Debt)

I like to give when a charity has an event. Rather than write them a hundred dollar check, why not sign up for the charity’s 5k, give them the money anyway, and have a good time while you are at it? This is a good way to meet other people of like mind and show your support in a stronger way.

Very well put together post.

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Lisa @ Cents To Save

I give to ASPCA because I feel I have to. When I say I have to, My heart is telling me to. We also tithe to our church and support Jews For Jesus.

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AP

As a previous charity runner, I can say that the amount of donations I raised was pretty amazing. Over $2500 from my supporters (friends, family, coworkers). I felt so blessed and amazed that so many would step up on my behalf just becuase I asked. That said, it wasn’t the most efficient system for donations, as not 100% of the money went directly to the charity. There was ad money, race program money (registration ain’t cheap!) and so on. But supporting your friend to do what can seem impossible at the start is really worthwhile. However, I think a runner really only gets this reaction from supporters 1 time. After that you are more or less being greedy and trying to get all of your race fees covered. I did it once, I am happy I did it, and I will never ask for money to run another race (though I keep running).

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Super Frugalette

I give to causes I support. I prefer to remain anny.

I have been the recipient of many gifts on account of my son’s disabilities (he has severe cerebral palsy and it non verbal and non mobile). For example a family just gave us a piece of therapy equipment because their own child had outgrown it. This piece of equipment retails for $1300 and is not covered by insurance. I was really grateful to receive it. When my son out grows some of his equipment, I pass it along as well.

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Thomas - Ways to Invest Money

I still believe in giving but I just don’t give in the way I used to before. I don’t give as much money as I use to simply because too often you hear or find out that the money is being used for something other then what they tell you. Some things that are close to home like breast cancer I still donate to. For other things I spend time and look for other ways to help. I donate old clothes and things to charity as well and make sure as a family we get involved.

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