There is no shortage of evidence that giving to charity is good for us. We get a “pleasure buzz” or “helper’s high” from giving. Generosity also has any number of health benefits to boot. Sometimes we just need to give ourselves permission to be generous. As noted at the White Coat Investor:
There is a psychological effect of giving some of your hard-earned money away voluntarily (sorry, taxes don’t count.) It sends your subconscious a message–“You have enough, quit worrying about running out of money.”
Part of the challenge this time of year is that it seems every charitable organization uses the holiday season as an opportunity to reach out and ask for donations. So much so that we even begin to avoid situations where holiday gift-giving is a time-honored tradition, i.e. bell-ringing Santas. One way to deal with the pressures of holiday giving is to have a charitable plan in place for the year as a whole. This pre-commitment or “implementation intention” can help assuage our guilt when we walk by that bucket.
Cass Sunstein writing at Bloomberg writes that charities may be doing themselves a disservice by asking for immediate donations. Research shows that asking for increased donations at some point in the future, i.e. Give More Tomorrow, is a much more effective approach. Sunstein writes:
The main reason to do that, of course, is to help others. But behavioral science offers another reason: Those who give to others enjoy a big boost in happiness. So here’s a terrific gift that you can give yourself: Make a commitment today – to give more tomorrow.
Once you have committed to give more you need to make sure your money is going to organizations that will make best use of your hard-earned money. Barry Ritholtz as at Bloomberg notes some ways in which we can make sure that our charitable funds are being well-used including checking Charity Navigator or using Give Well.
One of the big things when it comes to charitable giving is the question of taxes. We all want to do well, but we also want to make sure we are doing so in the most efficient way possible. Carl Richards at the New York Times has a great step-by-step guide to building your own “personal plan for giving.” One thing he notes is that for the vast majority of Americans taxes really don’t come into play. He writes:
One question that comes up when it comes to charitable giving is the tax implications. But for about 70 percent of us this is easy to clear up: You get no tax saving from your donation…The most recent data I could find was for 2014, and about 70 percent of us took that standard deduction. So there’s no reason to worry much about it and instead focus on the giving you want to do, because it won’t matter to your tax picture.
That being said, there are likely many of you out there sitting on stocks (or other securities) with big unrealized capital gains. Donating appreciated securities is a tax-efficient way of giving to charity. An even better approach is to donate those appreciated securities to a donor-advised fund. Donor-advised funds are an increasingly popular option due to their flexibility and ease of use. Karen Wallace at Morningstar writes:
One of the big things propelling the growth of donor-advised funds is how easy and convenient they are to use. Many of the larger ones, such as Fidelity Charitable, Schwab Charitable, and Vanguard Charitable (each of which we’ve profiled in recent weeks), have user-friendly web solutions that make donating and granting easy. Donor-advised funds make things easy from a recordkeeping perspective, too, because even if you donate to multiple charities in a calendar year, the fund consolidates the receipts you would file with the IRS into one statement and one deduction amount.
Online advisor Betterment is also trying to make donating appreciated securities easier for its clients. The company recently announced a way for its clients to donate securities with long-term capital gains directly to certain charities. My guess is that this type of service, or something like it, will become a standard feature for advisors going forward.
Like any other aspect of our financial lives, charitable giving is highly personal. How and to whom we give is ultimately a reflection of where we are in our lives and our unique view on the world. That is why it was great to read this post by Mr. Money Mustache on how his family’s charitable giving reflects his unique circumstances.
In the past we have used this blog to raise funds for charity:water. charity:water has a unique story that the founder Scott Harrison talks about in this video with Scott Galloway at L2. During our most recent membership push we donated to Team Rubicon, especially in light of all the natural disasters. Those were two of our (public) choices. You should donate wherever you feel most passionately.
I’ll leave you with the words of Mr. Money Mustache on the topic of giving:
During all this questioning of life, I kept thinking back to the times I’ve been less selfish and less fearful, and more willing to help other people. These were the things that reassured me that my life was indeed a good one, and that I wasn’t squandering the opportunity too badly so far. In short, being a good person was by far the most reliable source of happiness.
*Another easy way to give to charity is to set your Amazon account up with Amazon Smile where 0.5% of each purchase goes to the charity of your choice. More details here.
**Late breaking…see also these “27 strategies for giving” at Bloomberg including a big infographic on the optimal way to give to charity.
