Give Your Capital To Receive Happiness

Giving effectively is one of the financial skills that we must master to make the most of our human and financial capital. Pro-social spending helps us to build social capital that we indirectly benefit from. Moreover, we also benefit directly through increased levels of happiness and life satisfaction.

You don’t gain much satisfaction when you are dead. So, learn how to give regularly and effectively while you are alive. It is like a muscle that you must exercise regularly and deliberately and in return you will become stronger. Also like exercise, it is not something to put off to “someday when I can”.

Pro-social spending and well-being around the world.

Many people think of the ultra-wealthy when they think of philanthropy. There is a strong chance that you have seen a hospital, wing, building, or endowed chair named after some rich donor. While those gifts catch the headlines, giving is not only for the rich.

Even when you control for income, generosity brings happiness and improved well-being to the people doing the giving. Well-being and giving (prosocial spending) are correlated around the world across a wide range of wealth.

It may not be how much we spend on others that matters, but how we spend it.

donating money

Give frequently & in small amounts

Interestingly, large, isolated gifts towards the end of our lives may also not be the best way to reap the emotional rewards of prosocial spending. Small and frequent giving may yield more warm and fuzzies than infrequent large donations.

In a study by Aknin, Norton, and Dunn – students were given either $5 or $20 to spend. This was in 2008 – so a windfall for a poor student. They found that those who spent the money on someone else, like buying them coffee, were happier than those who spent it on themselves. Those with the $5 were happier than the $20 spenders. Bigger money adds stress, I guess.

In addition to a happy-boost in the moment, a later study found that recall of giving yielded more feelings of well-being than recall of having spend the money on themselves.

Giving frequently and in small amounts yields more happiness, but the details of how we do that giving is also important.

Donate human capital along with financial capital.

Coupling social interaction with giving is important for it to give us emotional rewards. We are happier when we donate to a cause if we are directly supporting someone associated with it. For example, giving to your friend who is fundraising for something.

We are happiest when we can directly see the benefit and participate. In an experiment, people were given a $10 Starbucks card. They experienced more happiness when they used it for a friend than for themselves. However, that only increased their happiness if they took the time to have the coffee with their friend.

Don’t just buy your med students and residents coffee. Drink it with them. Or have a hot-dog eating contest.

The Hotdog Eating Contest. Grey’s Anatomy. ABC Network.

Target giving to causes with concrete results.

Directly interacting with someone while giving is pretty concrete. However, tangible results are also important when giving to causes that are further outside of our social circle. For example, in one study those who gave to Spread the Net felt more happiness than those who gave to UNICEF. Both organizations help kids around the world, but Spread The Net had a concrete impact statement that every $10 would buy a life-saving mosquito net.

That does not mean that broad charities are less important to give to. However, if you want to feel happier about your donation, then read their annual report or updates on the impact that your generosity has had. Personal letters of gratitude, such as those from Foster Parents Plan are even more impactful.

Give freely.

The biggest payments that I make each year are to various levels of government. Taxes not only benefit us directly, but have a proportionally larger benefit for those who are less fortunate in our country. Some problems are also best addressed through the scale and powers of government. So, there is an element of helping others in addition to ourselves.

Unfortunately, the connection between the concrete benefits to others beyond ourselves and the money paid to governments is murky. That likely steals some of the joy of paying taxes. That, and the fact that is it mandatory-paying rather than freely-giving.

In a small study, when a tax was applied and directly linked to donating to the food bank, the same pleasure areas of the brain lit up on MRI that did when giving to the foodbank directly. It wasn’t as strong as with voluntary giving, but was still there. If only the use of our tax dollars was that transparent and efficient.

In another larger study, the act of giving when the default was to not give and personally spend instead had the largest boost to happiness. Conversely, those for whom the default was to give and they opted out experienced the most negative emotions. Tax-dodgers take note.

In summary, giving yields more joy when it is voluntary. However, when you do give through obligation, a tax, or a tithe – try to see the concrete benefits to others that result from it.

Do not try to shirk your obligations – it will make you unhappy. It could even buy you an orange jumpsuit if it is tax evasion. Very unpleasant.

Giving & Taxes

While you should not dodge your giving obligations, such taxes or tithes. You should try to minimize your taxes within the legal allowances. This is good financial stewardship because it leaves more money for you to directly impact the causes that most reflect your values. That financial strength is especially important when you want to help beyond registered charities that are eligible for tax deductions. Family, friends, and plenty of community projects fall into that category.

You can even further legally reduce taxes by giving to registered charities. The tax efficiency of donating to a registered charity is even greater if you donate using your private corporation (if you are incorporated). There are also many ways to donate to charity outside of a corporation.

Redirecting tax dollars towards registered charities can result in a greater direct impact for causes you value and increase your own well-being at the same time. Of course, you should ignore that option if you feel the government is better at prioritizing and directing your money than you are.

Involve your kids.

philanthropy happiness
My daughter performing at a Cystic Fibrosis Fundraiser

We want our kids to be good with money. We also want them to have happy and fulfilling lives. Well, making sure that you teach them about giving is vital to both those outcomes. It is one of the essential financial skills that they develop to thrive (along with earning, saving, investing, and spending).

Model this for your kids by giving freely, frequently, and thoughtfully for the most impact. Don’t simply model healthy giving, progressively involve them in discussion and decisions. Savor those relationship-building moments as well.

For example, for several years our family has given to Cystic Fibrosis. I have known many people with CF and my family has an affected friend. Over the years, we have seen the impacts of research and community supports directly. Our karate community leads a team for fundraising and both of our children spent their human capital performing at fundraisers. Each spring, we participate in the CF Walk with family and friends. The financial donation is anonymous, but our kids know, and we discuss that with them when we are planning our major donations each year. This has been a great combination of active giving, impact, and relationship building for our family. We get to relive the satisfaction when we look back on the memories.

Be spontaneous, but also be deliberate.

Giving frequently in small amounts is usually spontaneous, as the opportunities present themselves. However, just like the rest of your spending, you should make giving a part of your financial plan. Particularly for planning larger donations. You could even have an annual giving meeting to plan out your family’s major donations for the year.

Apply these principles when giving deliberately:

  • Give frequently
  • Even in small amounts
  • Donate your time in addition to money to build relationships
  • Give personally through people you know, connected to the charity, when possible.
  • Aim for concrete impacts. Follow up and seek them out.
  • Tax plan to maximize the money you have to give. Whether to a registered charity or not.
  • Model good giving in your day to day life, but also deliberately discuss and plan it as a family.


  1. Thanks LD for another informative post on how to maximize happiness by “spending” (giving) our hard earned dollars to good causes.

    I thought giving from personal income is better than giving through CCPC corporation. Tax effect of donating X dollars (x >> 1000 ) on corporation is same as giving X dollars as salary.

    On the personal side donating the received X dollar generates donation tax credit to offset all taxes on X and also builds RRSP contribution room.

    Can you please provide references and/or explain why donating through a ccpc is better? Is it due to employer contribution portion of CPP? What if CPP is already maximized before additional X dollars of salary?

    1. Thanks PD,

      I plan to make a full post about the tax aspects of donating to charity. In a nutshell, donating to a registered charity with a corp is a bit better because it is a directly deducted expense dollar for dollar. Donating personally, it is a tax credit which may or may not make up for all of the tax when in the highest brackets. Some provinces have provisions to help reduce that impact. If you have appreciated stock (or ETFs) to donate, then that is a super-bonus. The full amount is a deduction (no tax) plus the full amount of the capital gain (not just half) gets added to the corp’s capital dividend account. So, you could give twice the amount compared to usual as a tax-free capital dividend later on. The final reason why a corporation is good for donations is that there may be a non-registered charity that requires support. That would not be deductible personally. However, if it could reasonably be considered “promotion”, then you may be able to give via the corp. If considering that, I would definitely talk to my accountant first and it cannot be something from which you derive personal benefit.


      1. Thank you LD for the explanation.

        I would be eagerly waiting to read your article on making charitable donations through corp vs personal account.

  2. From the outset, I would say that my personal biases are 1) that a well-functioning taxation system (government) beats charities in providing a sustainably good society for everyone, 2) that my values and interests are not more important than those of the many, and 3) that the existing faults in government and how our taxes are distributed can be worsened by lack of faith in government, especially from powerful or influential people.

    For these reasons, I felt morally challenged by the idea of incorporating in the first place (I am new to practice). Sure, all the money through corporation will eventually be taxed, but much later and at lower tax rate, and this is money society can use now, even if simply to invest in financial products as I would, or in people and infrastructure, which society can benefit from. Another one of my views is 4) that a more prosperous, egalitarian society will also be happier and safer for me to live in.

    I finally decided to incorporate, but I never became certain about the rightness of that decision. I told myself that I may enjoy the financial freedom of having important investments in a corporation, especially if my work output diminished in the future, and that I could retire earlier, but my future plans are not clear to me and it isn’t clear that either of those things would happen. I rest on a few rationalizations for justifying the decision to incorporate despite the points I made above: 1) I would still contribute a substantial amount of tax dollars by paying myself a salary through the corporation, 2) reportedly, physicians were given the liberty to incorporate in lieu of pay raises sometime in the past, and using this liberty is basically accessing a ‘raise’ of sorts, 3) the existing failures of society’s collectivistic project, in which hypothetically, richer folk would be contributing to society by valuing the tax system, is not my burden to take on fully, 4) I can support political or social causes that do promote a more collectivistic turn in our attitudes.

    In the end though, the weightiest reason to incorporate was my own greed and wanting to keep more for myself, which sounds bad to say, but that was reality, and I didn’t feel ready to commit one way or other, so decided to keep more money on my side to keep my ability to commit in the future.

    1. Hi TS,

      I have honestly given those issues considerable thought too. In the end, I think that there are some things that governments do better due to their regulatory power and scale. However, the politics (the need to pander to what is popular, whether right or not) and the bureaucracy of scale hobbles them from doing other things well. We see it repeatedly. A well-run charity may be more suited for some tasks. Sure, in an ideal world maybe governments could do better than some charities, but not in the real world. We all benefit from a better society with more equal opportunities which is why I don’t begrudge paying my taxes. I didn’t come from wealth and benefited from public schools and resources. I know that there are some ultra-rich that tax dodge, but most of the taxes are paid by the high earners. The top 20% of taxpayers pay 59% of the taxes collected. The top 1% earn 10% of the income (pretty wild), but also pay 20% of the taxes collected. People have different skills, drive, circumstances, and luck that will lead to different outcomes. However, our progressive tax system generally makes the fortunate ones pay more to help level the field and provide for public schooling, healthcare, and a social net to boost opportunity. I pay very large amounts of tax, even with a corporation, and it will all be paid in the end. So, I don’t feel guilty about it. That said, I also think supporting non-government causes are important and we donate a large amount each year to charities on top of our taxes paid. Most of that is to registered charities (which allows us to give more due to the offsetting tax reduction). Some is to non-registered causes to support individuals we know trying to do great things. We can do that because we have been good financial stewards and that will increase as our financial power increases.

      For me, it is about good financial stewardship. How can I have the most impact with my money? Some of that is via taxes (which I have to pay and contributes to what governments do well, plus some wastage) and some I can direct to where I think the impact is greatest by charities. By paying attention to not overpay taxes, it gives me more opportunity for the later.

    2. TS and LD,

      Good points on either side of giving, (I never thought of taxes paid by me as me giving to the govt to do greater good for everyone but it makes sense) and to charities of my choice so as to impact the areas which I believe need help and or are closer to my heart.

      TS, You took me to my younger days! I am an immigrant from a country where corruption was rampant (things have got somewhat better now) and most of the tax collection was wasted or filled pockets of those in power. I still remember the conversation (debate) I had with my accountant for the very first tax year filing as a small business and the idealistic me finally convinced him that I want to NOT optimize my taxes so as to help govt do the greater good. That was a naive, younger version of myself. Eventually, I got frustrated with the system seeing my tax dollars being squandered away and here I am in Canada, 10 years later than when I could have landed.

      I am happy to pay my taxes here as I see they being deployed with better efficiency but the happiness seems to be diminishing over 25 year period. Our public systems have deteriorated and it seems beyond repair. Our public school systems (at least in the GTA area) are pathetic and accelerating toward the bottom. I said this in the school parent council meeting almost 15 years ago so maybe they have already reached the bottom? Our health care system? It really hearts that I can’t find a good family physician who is taking new patients in my new neighborhood while the walk-in clinics are popping up like wild mushrooms, that the wait times are increasing and we had to wait for about 7 hours (yes 7 hours) to see a doctor in Georgetown hospital when my wife had a panic attack (which we knew after the fact, it looked like a stroke to us when we started from home so I took a day off).

      I don’t think our government is doing a great job with our tax dollars. My latest strategy is to make large donations to registered charities, get the tax credit and see my hard earned dollars getting used (hopefully) more efficiently.

      PS – After my wife’s tests were done, the hospital staff probably knew within a couple of hours that it was nothing serious. It took me quite an effort to convince them for a doctor to talk to my wife for literally less than 5 minutes, else it would have been a wait time of 7+++ hours.

  3. LD,

    It will be great to have an “LD certified” list of Registered and non-Registered charities (separate list for each category). I immigrated as a mature adult hence I have limited exposure to the “Canadian Way Of Life”, my born here daughters are way better assimilated. I donate to mostly ethnic charities plus local food banks, Doctors without Borders, and Salvation Army (I was fortunate to get to see their volunteers do amazing work on the ground by a random chance 2 decades ago else I would have never gotten the idea of donating to them ). I used to donate to World Vision but changed my mind after a few years of doing so.


    1. Thanks PD. Hard for me to make a list, but there is some good stuff out there. I would start with causes that I know and value (like you have done). If I wanted to add an extra layer, there are websites that attempt an analysis of impact based on outcomes and cost effectiveness. Here is a link to an article explaining how they rate impact in lay terms. There is also stuff on the Charity Intelligence site, but I find it more technical.

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