TrustWell’s Quarterly Market Review: Q2 2020
July 1, 2020
When to Take Your Social Security Benefit
September 1, 2020
By Chris Daunhauer
Six out of ten American households give to charity each year. Americans give almost 7x as much money per person as Europeans and about twice as much per person as Canadians.
Religious people tend to give more than atheists, agnostics, and secularists, but charitable giving is good and popular regardless of religious affiliation or political leaning. TrustWell clients know that we think charitable giving is one of the very best uses of money.
Many of my clients are not at all religious, but I still suggest they do significant giving to causes that matter to them as part of their regular monthly or annual spending. For my religious clients, I often encourage them to start to give (or give more than they have) for reasons other than the teachings of their faith.
Here’s three reasons non-religious people give to charity (and why religious people should consider it, too.)
- Charitable giving saves you money on your taxes – TRUE TO A POINT
This is a frequently given reason, but it’s the least compelling of the three. It’s true that our tax code favors charitable giving and that money given to 501c3 organizations may reduce the amount of money that a person has to pay income taxes on. It’s also true that the list of IRS-approved charities includes tens of thousands of cultural, religious, community, and educational entities. And it’s true that gifts of tangible property and use of your personal vehicle in support of those organizations get similar favorable treatment. But it does not always reduce one’s taxes. Only 10% of American households itemize now, and for the 90% that do not, any giving they do during the year has no impact on the amount of income tax they pay.
Even for those households that do itemize, it’s not a 1 for 1 reduction. The IRS does not make the contribution; you do. Giving $1,000 to a 501c3 animal shelter does not reduce your tax bill by $1,000. It just means $1,000 less in income that you have to pay taxes on.
Here’s an example… Let’s say that a client named Lisa who itemizes her deductions and is in the 24% marginal tax rate. Lisa is thinking through the pros and cons of giving away $1,000 to a 501c3 animal shelter she loves…. If she DOES NOT give the $1,000 to the charity, she will have to pay $240 in taxes on that $1,000 ($1,000 taxed at her 24% marginal rate). But even after paying taxes she will still have $760 left in her pocket net of tax. If Lisa DOES give the $1,000 to the animal shelter and takes the deduction, she will not have to pay taxes on any of that $1,000. But she will also have $0 in her pocket because she gave it all to the animal shelter. She gave $1,000 to the shelter, and it only “cost” her $760. The $240 difference is money that she was going to lose anyway; either to taxes or to the animal shelter.
So even when your charitable giving is fully deductible, it still costs you money. And you’ll always have more money net of tax in your pocket if you don’t give than if you do. From a purely mathematical standpoint (a narrow view we never recommend), giving to charity is a financial loss, and this is true even when your giving is fully deductible. But six out of ten American households still give, because there are other, much better reasons to give
- Giving to charity is part of living a moral and virtuous life – TRUE, PER ANCIENT SECULAR PHILOSOPHERS
Greek philosopher Aristotle (384 to 322 B.C) wrote extensively on the attitudes and behaviors that make a man or woman morally virtuous and his secular wisdom on this subject has been studied continuously ever since. Aristotle believed that a person who possesses excellent moral character will tend to do the right thing in the right way at the right time, not out of any religious obligation, but because that person is virtuous. He said that a virtuous life is a happy life – worth pursuing for its own sake.
Aristotle focused on the practical application of virtue in its various forms. In his book Ethics, Aristotle taught the “forms” or behaviors that men and women should aspire to and he explored the outward signs of having too little or too much of each one. A man with too little bravery is a coward, for example, and a man with too much bravery is rash or foolhardy. But a man with the right amount of bravery (what Aristotle called the “golden mean” for bravery) is courageous.
Aristotle gave similar treatment to a host of other forms. A woman with the right (or virtuous) amount of wittiness has charm. Too little is boorishness; too much is buffoonery.
He believed and taught (not from any religious belief, by the way) that how men and women gain and use money is a good indicator (and a good developer) of virtue.
He labeled the virtuous, or appropriate, concern for money “liberality” and he described at length how a person would behave if he or she possessed it. Having too little of this virtue he called “meanness” (AKA stinginess) and too much of this virtue he labeled “prodigality” (AKA wastefulness).
The right amount of concern for money and wealth (again, the golden mean for this virtue) he called “liberality” — something to be practiced and likely to lead to a happy life. “…the liberal [person]” he said, “will both give and spend the right amounts and on the right objects, alike in small things and in great, and that with pleasure; he [or she] will also take the right amounts and from the right sources.”
Aristotle was a realist. He believed that humans are not naturally virtuous, and that the moral virtues cannot be prescribed exactly in any book of rules or customs. Instead, those moral virtues come after observing others who are leading virtuous lives and are developed over time through practice.
- Charitable giving feels good and increases happiness – TRUE, WHEN DONE CORRECTLY
Call me selfish, but I think this is the best reason of the three. There’s solid research from multiple studies over many years that spending money on others brings more short- and long-term happiness than spending money on yourself, and this tends to be true regardless of the amount that you spend on others. Charitable giving certainly counts as spending on others and we encourage it.
There’s also research that shows giving to charity brings joy to the giver in proportion to how willing the giver was to make the gift. Gifts to others and contributions to charity made under compulsion or only because of some cultural expectation or religious obligation tend to make the giver feel worse, not better.
And giving to people, organizations, and causes that the giver feels a strong connection to and that make a real difference for others brings the most joy of all.
My wife and I give to charity, and we have become better at it over the years. We have noticed in ourselves that our giving is done less and less as in obedience to the teachings of our Christian faith, and more and more because of the joy that giving gives back to us.
TrustWell as a firm, and all of the advisors and staff at TrustWell are “experienced” givers. We know ways to make it tax efficient and fun. Contact us if you’d like to learn more.
www.philanthropyroundtable.com
https://en.wikipedia.org/wiki/Nicomachean_Ethics#Liberality_or_generosity_(eleutheriot%C4%93s)
Aristotle’s The Nicomachean Ethics, translation by Sir David Ross, Oxford University Press 1925
Happy Money: The Science of Smarter Spending by Elizabeth Dunn and Michael Norton, Simon and Shuster, 2013
