Does giving to charity amplify, hinder, or have no impact on your wealth?

[Joseph]

Just wondering philosophically here at the dinner table tonight, does giving to others help us with our financial planning or does it serve as a stumbling block?  I know people who give religiously a set percentage, others give lump sum donations here and there, and some give nothing.

I was wondering if anyone has felt a benefit to giving...or an adverse hit to the pocketbook.   Or is it something that you honestly don't think about/feel  at all?

[PhysicianOnFIRE]

Mathematically, assuming we're talking about dollars given to charity, donating would be a hindrance compared to giving nothing.  Conversely, donating household goods and clothing to charity, rather than tossing or giving away, would increase wealth by virtue of the tax deduction.  Donating your time can be personally rewarding without affecting the bottom line, as long as you're not taking time away from gainful employment to do so.

I choose to give and I look forward to having the ability to give more as my net worth increases.  I have made it a goal of mine to build my donor advised fund up to 10% of my nest egg at the time I retire.  That goal will add a couple years to my working career, or decrease my retirement nest egg by about 6%.

[FirstFruits]

Giving is neither a hindrance nor amplifier for my long term financial goals.  It reminds me that hoarding money is not my top priority in life.  That being said, I typically only give away 10% of my net income each year and could easily do more.

[VagabondMD]

There are studies that show giving to others improves happiness in the giver, independent of any financial ramifications. Give away (no pun intended). ?

[jfoxcpacfp]

The Bible teaches to "give as you have been prospered" and to give joyfully. Tithing is an Old Testament command and not under the new law; I personally believe this misconception often hinders Christians from giving bountifully.

I struggle with the "rich" givers in Matthew 12: 41-44 (although I am not rich and don't give for others to see). It's easy for me to make financial gifts, but not so easy to give my time (which I compare to the widow's mites).

Of course, Luke 6:38 tells us to "Give and it will be given to you. A good measure, pressed down, shaken together and running over, will be poured into your lap. For with the measure you use, it will be measured to you." This implies that we will receive far more than we have given and I have seen this multiple times, although I believe you must give from the heart. I agree with  Vagabond MD.  The psychological impact (joy) from being able to help others makes charity very worthwhile to me. At the same time, I am very cautious about giving to organizations with high overhead (ACS, for example).

[chrisCD]

Giving is the one area where God challenges us to test Him.  Giving is a way to help those that helped you along the way.  No success is reached in a vacuum.  And although often $ is easier to give, many can also use gifts of time.

cd :O)

[The White Coat Investor]

Removing the possibility of blessings from deity, which is a big reason why many give, there are several other factors at play.

Obviously, the money that is given away cannot compound and grow into wealth. So that's a negative factor.

However, giving makes you nicer, so people want to work with you more and you end up earning more.

Giving also forces you to be less greedy and more happy with what you have, so you spend less and thus accumulate more wealth.

Paying a tithe forces you to do financial planning. You have to at least add up your income and multiply it by 1/10th, which is more than many do.

Overall, I suspect a little giving amplifies, a lot of giving hinders, and for most people it's probably a neutral effect. But I have no idea and would love to see good studies on the subject. But whatever they show, I'm going to continue to give.

[jz]

As WC stated, money given can not appreciate nor compound :  it's gone.

The toughest part of charitable giving is finding the entities that represent my values. Working in the ER sensitizes me to the destruction wrought by Gov't Dependency. I beleive the 5 tenants of Toxic Charity.

http://www.amazon.com/Toxic-Charity-Churches-Charities-Reverse/dp/0062076213

Alternative niches include churches, art and culture, environmental preservation, and even political groups if they are 501(c)3.  My charitable beneficiaries have evolved over the decades.

 

[docnews]

First off let me say that this a great conversation to have and it would be closed down pretty quickly on bogleheads because it touches on religion.

I was challenged from a great doctor mentor in medical school that if you don't give while you have little you won't give when you have a lot. Giving is a habit so I gave then and gave regularly (no holding on to money until December).

I also know that as an educated person I will have a tendency to play with the numbers and justify to myself in giving less. I also don't want tax law to tell me how generous I will be. Therefore I make donation goals based on my gross (aka full) income. Throughout medical school and residency I have not benefited through the tax code for giving because I could not itemize higher than a standard deduction. Now that I will benefit from itemizing (if you mean benefit to mean keeping my tax percentage from growing even more) and I make more, I feel challenged to give even more.

I am big advocate of giving smartly. In fact the same med school mentor made that his second point, even to the point of criticizing those who give to churches blindly and are not being active in or educated about the committees who direct the use of the funds. But all that said: one should not over think giving to the point of not giving.

Giving is very personal. But as one who has given and hopes to give more, after taking care of my family, it is my second greatest joy of being wealthy.

I was looking at US census data recently to compare NH and SC before the primaries and I have to admit it still shocks me that only 28.8% of >25 year olds have completed 4 year college degree. 50% of US households make less than $55k/yr. 77% make less than six figures. And if you make >$200k/yr, which many doctors do, you are in the top 5% of income earners in the richest country on earth!

My personal religious belief is that what I make is not mine but God's and I am not deserving of more but am actually deserving of death.

[Jenn]

No impact. I am not a big donor of money- more of time- but where I give it's just another choice. My husband's interest in sailing and my interest in politics (if you don't count that as giving to charity) and even my interest in gardening (thankfully NOT my love for chocolate- or it'd be costing me my health as well) hinder our financial status. However, we chose them and continue to choose them. They, and the other things we choose to spend our money and time on, multiply our wealth.

[VagabondMD]

The White Coat Investor wrote:

Removing the possibility of blessings from deity, which is a big reason why many give, there are several other factors at play.

Obviously, the money that is given away cannot compound and grow into wealth. So that’s a negative factor.

However, giving makes you nicer, so people want to work with you more and you end up earning more.

Giving also forces you to be less greedy and more happy with what you have, so you spend less and thus accumulate more wealth.

Paying a tithe forces you to do financial planning. You have to at least add up your income and multiply it by 1/10th, which is more than many do.

Overall, I suspect a little giving amplifies, a lot of giving hinders, and for most people it’s probably a neutral effect. But I have no idea and would love to see good studies on the subject. But whatever they show, I’m going to continue to give.

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There are lots of psychology studies like the one referenced here...http://www.huffingtonpost.com/brady-josephson/want-to-be-happier-give-m_b_6175358.html...that consistently show that giving makes one happier.

[jfoxcpacfp]

As a side note, if you donate items to your local non-profit thrift store or other charity, I cannot recommend the organizer Deduct It! Deduct It! highly enough. It is so helpful to clients that we keep in stock to give away when we learn that they are moving. The book is extremely detailed in listing acceptable values for donation of goods (from clothing to furniture and more) and will definitely increase your allowable deduction. It is updated annually with current values.

[Osiris]

If you give to charity, you have less wealth in a monetary sense.

However what else are going to do with the your money? Buy a fancier car a second or third house?

It is good to share. I feel very fortunate in how much wealth we have accumulated. We will leave most of our wealth to charity. I do not have the religious bone in my body  and will stay far away of any religious charity.

But any money given to charity is worthwhile.

However the most bang for your buck is the GiveWell. "real change for your dollar"

The top three are Agains Malaria Foundation,the Schiostamasis Control Initiative  and Deworm the world initiative.

This year we put $180,000 in Vanguard DAF to get the taxdeduction.

Once I get to be a better person, I may actually volunteer in one of those programs.

 

 

 

 

 

[PhysicianOnFIRE]

Osiris wrote:

 

This year we put $180,000 in Vanguard DAF to get the tax deduction.

Click to expand...

Holy smokes!  Color me impressed.  In a few years, when I might reach the last few working years of my career, I plan to give six figures a year to my DAF.

The deduction is limited to 50% of AGI if giving cash, 30% if donating appreciated assets and I prefer to do the latter, so I don't think I'll ever have a year where I can give that much and get the full deduction.  Good for you!

[Osiris]

PhysicianOnFIRE wrote:

Do not be impressed. This will  be not be a yearly recurrence. We plan to spread our gifting to the GiveWell charities over multiple of years.

Osiris wrote:

 

This year we put $180,000 in Vanguard DAF to get the tax deduction.

Click to expand…

Holy smokes!  Color me impressed.  In a few years, when I might reach the last few working years of my career, I plan to give six figures a year to my DAF.

The deduction is limited to 50% of AGI if giving cash, 30% if donating appreciated assets and I prefer to do the latter, so I don’t think I’ll ever have a year where I can

give that much and get the full deduction.  Good for you!

 

Physican on Fire:

 

Do not be impressed. This donation is going to be spread out over several years. See Wikepedia Donor Advised Funds

 

 

donor-advised fund provides a flexible way for donors to pass money through to charities—an alternative to direct giving or creating a private foundation. Donors enjoy administrative convenience (the sponsoring organization does the paperwork after the initial donation), cost savings (a foundation requires around 2.5% to 4% of its assets each year to run), and tax advantages (versus individual giving) by conducting their grantmaking through the fund.^[1]

A donor-advised fund has some disadvantages compared to a private foundation, and some advantages. Both can accept donations of unusual or illiquid assets (e.g., part ownership of a private company, art, real estate, partnerships or limited partnership shares), but a donor advised fund has higher deductions for these gifts (depending on the gift). In addition, the founders or board of a private foundation have complete control over where its giving goes within broad legal bounds. In a donor-advised fund, the donor only advises the sponsoring organization where the money should go. While rare, a sponsoring organization could conceivably ignore the donor's intent. In addition, most donor-advised funds can only give to IRS certified 501(c)(3) organizations or their foreign equivalents. This rules out, for example, most kinds of donations to individuals, and scholarships—both things a private foundation can do more easily. Donor-advised funds do reap a significant cost advantage (foundations carry a 2.5-4% of assets overhead expense to maintain, a 1-2% excise tax on NET investment earnings and a required 5% spending of assets each year) but may also have one more drawback---limited lifetime, although this varies depending on the sponsor. American Endowment Foundation for example allows successor advisors in perpituity.^[2] While a foundation can persist for generations or in perpetuity, some sponsoring organizations impose a "sunset" on donor-advised funds, after which they collapse individual funds into their general charity pool.^[3]

Because a public charity houses the fund, donors receive the maximum tax deduction available, while avoiding excise taxes and other restrictions imposed on private foundations. Further, donors avoid the cost of establishing and administering a private foundation, including staffing and legal fees. The donor receives the maximum tax deduction at the time they donate to their account, and the foundation that administers the fund gains full control over the contribution, granting the donor advisory status. As such, the administrating fund is not legally bound to the donor, but makes grants to other public charities on the donor's recommendation. Most foundations that offer donor-advised funds only make grants from these funds to other public charities, and usually perform due diligence to verify the grantee's tax-exempt status.^{[citation needed]}

Drexel University environmental sociologist Robert Brulle, who has studied networks of nonprofit funding, described donor-advised funds:

In this type of foundation, individuals or other foundations contribute money to the donor directed foundation, and it then makes grants based on the stated preferences of the original contributor. This process ensures that the intent of the contributor is met while also hiding that contributor’s identity. Because contributions to a donor directed foundation are not required to be made public, their existence provides a way for individuals or corporations to make anonymous contributions.^[4]

Whitney Ball, co-founder and executive director of the donor-advised fund Donors Trust described donor-advised funds:

A donor-advised fund begins with a donor contributing cash or assets to a public charity, which in turn creates a separate account for the donor, who may recommend disbursements from the fund to other public charities. Technically, the charity that sponsors the fund has final say on the disbursements, and it is legally required to ensure they go only to charitable purposes, but in normal circumstances the original donor’s requests will be followed.^[5]