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.
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.
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.
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.
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.