It’s an interesting question, are we Charitable? We give to charities yearly in the amount of 5% of our income. But is that enough? Are our charitable decisions driven by altruism or something else? What is charity anyway?
We give 5% of our income to charity yearly. These donations come in the form of everything from money, to goods, to time. I have also made my feelings well known that charity should be a part of every person’s budget. Charity after all benefits both the donator and the receiving charity.
How Much to Give to Charity?
But how do we decide on setting the amount at 5%? Why not 3%? Is there something that makes the extra 2% a significant improvement for charities? What about 20%? One could make the argument that if some charity donations bring happiness that even more will bring more happiness. In theory, we could live on a shoestring and donate everything else. So why don’t we?
Why not less than 5%, Anchoring
So first off, why not less than 5%? Well, I have found over the years that 5% can allow me to make a significant impact with charitable giving. Much below 5% and I don’t believe I’d see nearly the impact of my donations.
I will say that a lot of reason for the 5% floor is because of anchoring. I set the amount at 5% based on my contributions when I first started my career. When I was making 50K a year that was $2.5K. Much below $2500 seemed like something that would not be impactful to a small charity. But at the initial 2500 dollar level, I felt like I was making a difference.
Start Early and You Won’t Notice Charity Dollars Removed from Your Budget
Now sure 5% increases every year in raw dollars, so that amount is now significantly more. But because I started with 5% early on in my career I just can’t see myself ever justifying reducing that number. I guess in a way that’s a recommendation for why you should start to donate to charity throughout your entire career. Besides the fact that you may never get to a donation if you don’t do it now, there is the benefit of helping you set a minimum yearly donation target as a percent.
Why Not More?
So why not a higher percent now that I make more money? Well obviously in raw numbers the value has increased but I still stick at my current percent. Again some of it is anchoring. I’ve shown for years that I can do very well by giving 5% and saving the rest, so why change now? But honestly, there is more to it.
Financial Perception is Anchored to Wealth and Income
Over the years my perception of the value of the dollar has changed. The more you make, as income or assets, the more your view will change. Even if you control your spending throughout your life that change eventually catches up with you. If you have a million dollars, saving 1000 no longer seems impactful. But when your savings was 1000, 1000 more seemed like a drastic amount. Basically, that concept of significant impact on your savings and expenditures is anchored to your income and wealth. So it makes sense that my targets for donation should be measured as a percent and flex with my income and wealth.
My Own Elasticity of Financial Perception, Below 5% is Noise
Along those lines, I have noticed where I tend to view funds as truly a significant financial impact to my own situation hovers slightly above 5%. Much below 5% and it’s noise. The funds lost in the couch when I was younger. The extra meal out a little later, and the extra vacation still later as our income grew. Quite frankly 5% is significant in that it is noticeable. The donation needs to be noticeable (at least to you) to really provide the positives from investing. But insignificant in that my quality of life or savings do not seem to be impacted at the financial stages of my life to date.
Below 5% is Not Noise to Everyone
Now I will admit my privilege here before going forward. Since my bout of unemployment just out of college I have never held a post-college job anywhere near the poverty line. In fact, I have never worked a minimum wage job. At some low enough income level where I didn’t make enough to survive, I’m sure even 5% wouldn’t be noise. But as someone who has always made a good salary, 5% is near enough a rounding error to both give me a good feeling and do some actual good.
Why and How Do I Give to Charity?
So why do I personally give? I wrote about some of the reasons before. It comes down to I want to give back to help those causes I believe in. I want to feel like I am having an impact on those causes. Thus it makes sense to donate in its various forms.
When I started out I invested primarily cash. These days the donations are an even mix of cash, goods, and time. This is done on purpose as I’ve found the different types of giving feed my need to see an impact in different ways. Ie. I give in my current mix more because of the impact of those donations and how they make me feel. Note I don’t monitor or set a goal for these donation categories, but rather just process them as they present themselves. A great resource for deciding on a charity organization can be found here.
Keeping Up with the Charitable Jones
Before I close I will say that sometimes I still do wonder if I should give more to charity then we do. It’s only natural to want to do more good. Such feelings also line up with the concept of imposter syndrome and keeping up with the jones. That tendency might be driven by seeing members of a religion giving a 10% tithe and say man I could do that. It could be by seeing someone devote almost their entire life to charitable causes like the individuals on mission trips in foreign countries.
Nurturing All My Values, Not Just Charity
In these times when I might question should I increase my charitable percentages I remind myself that charity is but one of my goals, not the only one. Like anything else in life, I feel everything needs to be done in moderation. I have varied values and I remind myself that I would like to fund all of those values. Fundamentally where I am set today allows me to fund those other values in a way that usually leaves me content. This is why I don’t increase the percent.
Do you give to charity? If so how much and why?