How To Give Charitably
Most economists argue that money is morally neutral. However, I think the practical reality is more nuanced—money in action is like a sponge, it absorbs the values and intentions of the user. When we put money into action, it always reflects our values. Spending, receiving, and giving money is never morally neutral.
What do you value? Do you value becoming a little bit wealthy? Then your work, savings, and investing habits should reflect that. Do you value serving, loving, and caring for others? Then your spending and charitable giving should reflect that.
However, here is a hard truth to accept: Charitable giving and building personal wealth are antagonistic. For example, if you are a median US household and donate 10% of your annual income every year, you'll donate 10% of $67,521. That's $6,752 per year.
Instead of donating that money, if you invested it in a moderate growth (60/40) portfolio, you might expect an annualized rate of return of 9.1% based on historical averages from 1926-2020.
Over sixty years, $6,752 per year invested at 9.1% equals $14,301,059. That's a lot of money that could otherwise be in your investment portfolio. You should still give of your wealth, but it will always be a sacrifice, so make sure it goes to a worthy cause.
Compassion requires us to be charitable, but let's be honest about it. It hurts, and it should, or it isn't an act of selflessness.
The question we need to answer is how to give your time and money to charity. Unfortunately, there is no simple answer to that question. Much depends on your values, family circumstances, and overall wealth. I don't like strict formulas because they are too rigid and can force some poor people into financially gut-wrenching decisions, while letting many wealthy people off the hook too easily.
I think charitable giving should be like taxes: the more you have, the more you should be donating. That is what helps justify your wealth—it allows you to do more good in the world. A billionaire who donates half their wealth may sacrifice less than a poor person who donates a hundred dollars.
But remember: Charity is selfless—not selfish. Otherwise, it's not charity. Don't use charity as an extension of your ego to dominate others or seek rewards or honors for yourself. That misses the mark.
Also, remember the first rule for rescuing someone who is drowning - don't jump in the water. Avoid putting yourself in a dangerous financial position with your giving and be mindful that your charity doesn't risk your financial security.
I think the best way to donate to charities is by giving your time first and your money second. Start by volunteering at your local school, homeless shelter, church, soup kitchen, environmental group, or animal rescue. Get to know a charity well, learn about their needs, and then the "how much" question will answer itself. With mindfulness and empathy, you'll see suffering and want to help as best you can.
When you have skin in the game by giving your time and talent, your charity becomes more mindful and powerful. Take a passionate interest in one or two causes and throw the weight of your charitable efforts behind them. Then giving becomes easy, natural, and graceful.
When you are ready to give to a specific charity, do a little fact-finding first.
- Make sure they are a legitimate tax-exempt 501(c)(3) public charity.
- Research their finances to ensure they are financially stable and use all donations effectively, not just on marketing and high salaries. Look at the "efficient ratio" to see what percentage of their income goes to their stated mission versus expenses.
- Be sure they are transparent and accountable in all they do.
Several websites can help with this process. The largest and most popular right now is Charity Navigator: https://www.charitynavigator.org/
Compassion requires charity: Share your money with the people and causes you love, in the spirit of love. Then you'll live a good, honorable life and can look back at the end and enjoy it a second time.
The information contained in this column is for educational purposes only and should not be construed as personalized investment, tax, or legal advice.