Why Do People Really Give to Charity?
| Other articles on: | Philanthropy & Responsible Investing |
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| Posted: | June 25, 2008 12:20 PM |
| Author: | Sean Stannard-Stockton |
In February I wrote a post positing that people give to charity as a way to satisfy their deeply held need to find meaning in life. The post is now the number 2 result in Google for the phrase, “why do people give to charity.” The number 1 result is a publication of The Federal Reserve Bank of St. Louis titled, “The Economics of Charitable Giving: What Gives?” The paper discusses theories of giving labeled “Perfect Altruism,” “The Warm Glow,” and “Prestige,” and concludes:
“Although some people may be altruistic when giving, economics tells us that the dominant motivation is the internal satisfaction that individuals derive from the act of giving itself. Individuals derive utility from giving much in the same way they obtain satisfaction from buying a new car or eating at a restaurant; especially when the number of donors is large, and the social context of other people’s giving is overshadowed by the satisfaction of one’s own giving when considering how much to give.”
I think the paper is a bit misleading. When trying to predict behavior, economics assumes but does not prove that people act in ways that maximize their own self-interest. Economics does not “tell us” that internal satisfaction is the dominant motivation for humans. The Merriam-Webster dictionary defines altruism as, “unselfish regard for or devotion to the welfare of others” or “behavior by an animal that is not beneficial to or may be harmful to itself but that benefits others of its species.” But I believe that only an incredibly narrow view of life holds that helping others is somehow separate from helping ourselves. Humans are communal animals. Without “others” we find life intolerable. If a person sacrifices for another, it is not simply “unselfish,” it is because they would be completely miserable if they chose to look the other way. Any parent knows that the happiness and health of their children is more important than their own needs. This isn’t “unselfish,” it is just something hardwired into our DNA.
The narrative of philanthropy is dominated by the concept that people who give do so for personal gain. I’ve seen many references explaining that Warren Buffett’s gift to the Gates Foundation was a way for him to exploit a loophole to avoid taxes. However, I think that narrative is false. Humans are interconnected with each other whether we like it or not. The fact that helping others also helps us does not diminish the act of giving. It is the brilliant fact of life that makes community work.
I’d now like to address a number of counter arguments I received in response to my original post.
Comment: “…I wonder if the wealthy individuals who create these foundations do so because they are self-actualized or need a tax break.”
The idea that people give because they “need a tax break” is widely believed, but is completely disingenuous. My professional expertise is in helping people structure the financial side of giving in the best possible way. The definition of “best possible” depends on the person’s goals, but limiting taxes is always a consideration. But let me clarify, you cannot legally structure a charitable gift so that the donor receives a net increase in their wealth. If you give away $1,000, you might be able to structure the gift so that you reduce your taxes by as much as $700 (or even more). However, at the end of the day you still have less wealth than if you had kept your money and paid the taxes.
I am not saying that taxes have no affect on donations. Taxes often drive the timing of gifts. However, it is important to note that the decision to part with money is a difficult one for most people. Even after an individual decides they want to make a donation they often stall on actually going through with the gift. It often takes the approach of the year’s end for donors to finally give up the gift qualifying for that year’s tax deduction.
I get plenty of phone calls from people who are interested in setting up some sort of charitable vehicle for the sole purpose of generating a tax deduction. But once they learn how foundations, charitable trusts, and donor-advised funds work, they are always disappointed and end up not setting one up. The idea that wealthy individuals who are sophisticated about money and taxes would give money away just to generate a tax deduction simply does not make any sense.
Comment: “Mother Teresa once said, ‘give ‘til [it] hurts you.’ Only giving which hurts the giver in some way is supreme.”
The idea that goodness comes from pain is deeply rooted in some religions. Personally, I believe, as I wrote in my essay, that humans are hardwired to enjoy the act of helping others. Feeling happy and good about helping others is a sign of positive mental health. Needing to feel pain to feel good is called masochism.
I also don’t believe that all donations are rooted in self-actualization. Certainly, many people (myself included) enjoy the social approval that comes from our peers when we make a gift. But this isn’t bad. This is part of the hardwiring that encourages humans to be social animals.
There is one criticism of philanthropy I find compelling: the idea that some gifts are motivated by a reciprocal benefit that is paid in non-monetary terms--for instance, a gift could be given to a university with the hope that it will improve the donor’s children’s chance of acceptance. These kinds of gifts are absolutely real. But they are a small minority of philanthropic gifts. Since it is illegal for a donor to claim an income tax deduction for a gift made in exchange for something of value, these kinds of gifts are a problem of our tax code, not a problem with philanthropy.
Sean Stannard-Stockton is a principal and director of Tactical Philanthropy at Ensemble Capital Management. Ensemble Capital provides families both traditional investment management and philanthropic planning. He is the author of the blog Tactical Philanthropy and writes the column On Philanthropy for the Financial Times.
Comment
Anonymous Combined Federal Campaign (CFC) Donors are Altruistic Givers
The Combined Federal Campaign (CFC) is the Federal government’s workplace giving campaign, and through it Federal public servants have donated more than $1 billion to thousands of local, national and international non-profits over the past five years. CFC monies are unrestricted, reliable and predictable.
CFC Anonymous Donors - Two Categories
For the donor, in addition to the CFC being the most donor friendly (by far) means of giving to a charity they care about, the donor has two different ways to remain anonymous. On a CFC pledge card, there is a check box that asks “Do you authorize the release of your name and contact information (address & e-mail) to the charities that you have donated to?” If yes, please put a check in the box and sign the release statement.
The feature of remaining anonymous to the charities that they care about is actually one of the favorite aspects of the CFC campaign to many Federal donors. There are no studies that show what the percentage is, but having seen thousands of pledge cards during my Federal career, it would not surprise me if it’s above 50%. This is where a big disconnect comes in between being truly donor friendly, (which most non-profits espouse) and their initial reaction to truly anonymous donors --- which is almost always to be irritated because they do not know who they are.
If they actually thought about it minute, they would realize that anonymous donors are some of their biggest champions, they obviously know enough about the organization to give to it, and they just don’t want the additional mailings, etc. In many cases, they are probably seeing information about that non-profit on their website, in community meetings, etc.
This is one category of anonymous donor, where the non-profit does not get any information about the donor, but the Federal employee’s colleagues may know that he or she donated, and participated in the CFC campaign (they would not know which charities or what amount was given unless the giver told them, that information remains confidential).
The second type of anonymous giving that is available to the CFC donor, is that to give in the campaign but in a completely confidential way, where even the campaign coordinators have no idea of any amount that was given. Federal donors have the option of asking for a “CFC Confidential Contribution” envelope, and if they choose they can give this way, although a very small percentage of donors use this option (less than 1%).
Yes, these donors can take a tax deduction if they itemize on their return, but I submit this case as an example of altrusitic giving. The main reason people give is that care about others, not that it advances their own economic self-interest. For the CFC anonymous donor they are the only one that knows if they gave at all, and how much they gave.
Don’t forget, there’s a reason that economics is called the “dismal science.” One of my favorite quotes is this one by Bobby Kennedy (April 1968):
“Gross National Product counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage. It counts special locks for our doors and the jails for the people who break them. It counts the destruction of the redwood and the loss of our natural wonder in chaotic sprawl. . . . Yet the gross national product does not allow for the health of our children, the quality of their education or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country. It measures everything, in short, except that which makes life worthwhile. And it can tell us everything about America except why we are proud that we are Americans.”
Regards,
Bill Huddleston, CFC Expert
P.S. If you want to learn why the CFC is the most donor friendly means of contributing to non-profits, please go to http://www.cfcfundraising and request the CFC special report. Thanks.
»» Posted by: Bill Huddleston, CFC Expert on June 27, 2008 09:38 AM