The Average Percent Of Income Donated To Charity Can Improve

Mumbai BeachDonating money is a very personal decision. There is no right or wrong amount. Anything more than 0% is good in my eyes. According to several of the largest charitable foundations, the average percentage a person donates of his or her adjusted gross income is 3 to 5%. Studies also discuss how Republicans donate more on an absolute basis, and the poor donate more on a percentage basis as well.

Doing your own taxes helps you think more about such topics as giving. You start wondering whether you’ve given enough or too much. You look for answers to figure out what is the norm and proceed to adjust within the band. Furthermore, you input different charitable scenarios to see how your tax bill changes. It’s all very educational and thought provoking.

DECIDING HOW MUCH TO GIVE

Government Leaders: Vice President Joe Biden donated $4,820 to charity, or 1.44% of his $333,182 salary in 2009. Meanwhile, Obama donated about $329,000 to 40 different charities, or roughly 6% of his $5.5 million 2009 income (largely from books and royalties). Obama also donated $1.4 million of his Nobel Peace Prize proceeds to 10 different charities as a straight pass through. In other words, Obama donated $1.723 million out of a potential $6.9 million in income, or roughly 25%.

Religion: The Bible refers to Jacob promising to give a 10th of what he receives back to God. “And this stone, which I have set for a pillar, shall be God’s house: and of all that thou shalt give me I will surely give the a tenth unto thee.”  Buddhism discusses alms giving to monks and nuns as a way to spiritually connect, show humility, and support the community.

The Super Rich: Warren Buffet pledged 85% of his entire US$45+ billion fortune to the Bill & Melinda Gates Foundation.  His rational is to give it away to people who will live longer than him, and who know how to give better.  In Warren’s case, he is giving away almost his entire net worth, which still leaves billions more to be passed down to others in his immediate circle.

The Poor: Perhaps they don’t pay much in taxes, but the poor do contribute a healthy amount to charity.  The 2000 Social Capital Community Benchmark Survey shows that households with incomes below $20,000 gave 4.6% to charity, higher than any other income group.  Households earning between $50,000 and $100,000 donated 2.5 percent or less.  Only above income levels of $100,000 does the percentage rise again.

THE “STUCK IN THE MIDDLE” PROBLEM

I sincerely wish I was as wealthy as Warren to be able to donate it all away. Unfortunately, but don’t cry for me, I’m stuck in the middle where I make enough to live a comfortable life, but not enough to not feel the sting of taxes taking away 45% of my highest marginal income. Hence, until I can join the 45% of Americans who pay no tax, or pay a more reasonable 15-25% of my last marginal income in taxes, I won’t be giving away all my money just yet.

Many people are stuck in the middle like myself. We are climbing the marginal income tax curve, feeling good about our progress, but also feeling bad that the harder we work, the more we pay to the point where we think about not working so hard any more.  The chart below shows the slight dip in percentage of giving when one hits the $75,000 to $100,000 income level. We have bills to pay, mouths to feed, debt to repay, roofs to repair, and retirements to save for.  It’s very hard to give a lot under the circumstances.

THE GIVE NOTHING IDEOLOGY

One of the most interesting viewpoints I’ve read is how none of us should donate any money to charity. The premise being that since we are moving progressively towards Socialism in America, with our income redistribution through a progressive tax system, the omnipotent government is responsible for supporting charitable organizations and eradicating poverty. The more I think about this viewpoint, the more I think it makes some sense given America has embraced big government to solve our problems (social security, health care, generous unemployment benefits, and so forth).

If you go visit Singapore, for example, you won’t see poverty on the streets. That’s because their benign dictator system has ensured that all people live a reasonably comfortable life with government housing projects, central provident fund (social security), solid infrastructure, and flat tax system. The government is doing its job in ensuring that everyone has at least a certain standard of living.

If we are relying on the government to fix our problems, we should also lean on the government to eradicate poverty.

A SIMPLE SOLUTION OF REDISTRIBUTION OF REDISTRIBUTED WEALTH

Those who pay lower taxes or no taxes at all are suggested to donate more to charitable causes since they are being subsidized by the few who donate the most to charity and pay the most in taxes to keep America running. The average effective tax rate is 20% for all Americans and 26% for the top quintile of earners ($248,400).  Perhaps a simple donation formula for everyone is: 20% (Avg. effective tax rate) – An Individual’s Effective Tax Rate = How Much To Donate. Of course, if your existing effective tax rate is already higher than 20%, you should feel good that the government is utilizing your income for the greater good…….. but let’s just use one example where this is not the case.

With some 131,000 homeless veterans in America, our government isn’t doing a great job honoring our people who allow us to be free. It makes me mad. But, I strongly believe that the 40%+ of Americans who pay no Federal income taxes are good people who are willing to redistribute their wealth as well.  Let’s call it a redistribution of redistributed wealth so the most needy benefits!

Recommendation To Build Wealth And Donate More

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Photo: Mumbai Beach at base of Queen’s Necklace, SD.

Regards,

Sam

Sam started Financial Samurai in 2009 during the depths of the financial crisis as a way to make sense of chaos. After 13 years working on Wall Street, Sam decided to retire in 2012 to utilize everything he learned in business school to focus on online entrepreneurship.

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Comments

  1. says

    I think as you get richer and older you can up the income you give to charity. Some people start off by giving 10% and living off and investing the rest and when they get older they donate 90% and live off the other 10%. It’s not common, but it’s a nice model.

    • says

      As the chart above indicates.. not necessarily as you get richer b/c of the tax burden one experiences. Giving dipped when you reached $75,000-$100,000. I truly wonder what happens at $200,000+ and so, the target level where the US gov’t wants to really put on the tax screws.

    • says

      Great point Max and I agree. The stats may show otherwise, but as Sam mentioned we don’t know what happens post 200k. Aside from the financial mechanics, there is a huge psychological component that goes into giving more as you make more. I can tell you that is true from my own personal experiences

      • says

        When you make more than $200,000, and definitely more than $380,000.. you start thinking “what the hell, I am paying more in taxes than I am saving! the government should use my tax dollars, and is using my tax dollars to redistribute the wealth and help others. Why am I going to give more.”

    • says

      If you do your own taxes, you’ll be interested to find what percentage of gross or AGI you’ve given. It opens your eyes, and makes you want to learn and read about articles like this one to see if you are in the ball bark!

  2. says

    We tend to give in spurts, like annually at an event we attend for American Cancer Society, or when we’re moved by a documentary or something. Not the most methodical or steady giving, but better than nothing.

    The higher Republican giving can be attributed to higher religious component. I don’t know that it’s a party methodology so much as you have more hard-core religious in the right than the left. Churches are huge charity organizations.

    • says

      You’re right about the religious component. That’s what a lot of the studies seem to show. But, if you look at the presidents giving past records, it sure seems like Democrats give way less.

      • junebug says

        True, but according to an article I read recently (A Nation of Givers), those who are religious are also more likely to donate to secular causes than non-religious. So the money isn’t all going to the church, although all of the churches I have attended do quite a bit of chritable work (run homeless shelters, provide meals to low-income families & seniors, run children’s programs, etc.) The religious are also more likely to volunteer and donate blood and give food to friends, family and homeless people (according to the article).

        Republicans are also more likely to donate than liberals because they don’t see charity as the responsibility of the goverment. Liberals are more likely to want to raise taxes and have the money used for those causes.

        Personally, I like to check out where the money I donate is going and how much the charity spends on administration, marketing, etc. I don’t see the goverment being that efficient about it. Plus giving is good for the soul. It reminds me that I am a steward of the money and need to spend it wisely and think about others rather than focusing on myself all the time.

  3. says

    I want to donate about 5% of my pretax income, but if I did that every year, I’d never get to itemize my deductions. So I donate 0% in one year, and then 10% the next. I’m in one of the 10% years, so my budget is strained, but I know I’ll save a little on taxes when I do them for 2011.

  4. says

    I don’t have any set % and don’t give on a continuous basis (although I’m only about 8 months into my career). I generally give for random things throughout the year when I or others are fundraising. Eventually I’d like to give more, but right now I’m just not at that point in my life/finances. I realize that people who make less than I do probably donate more, but that’s just the way it’s going to be for now until I achiever some of my other goals.

  5. Charlie says

    I’d say my donations range between 8-12% (if I include non-cash donations to Goodwill/Salvation Army). My totals vary depending on how my income is doing for the year and what kind of events are going on. If I had double my current income I’d definitely donate more. There are so many great organizations out there that I’ve always wanted to support but didn’t have the means to. I think that’s great Warren is donating such a high percentage of his wealth too.

  6. says

    Sam, I donate 10% to charity, and have done so since I was a young boy. Nowadays, it isn’t easy sometimes. I feel your pain in the sense of being stuck in the middle. I make enough money to live comfortably, so long as I am a careful spender, contribute to retirement, and keep my family taken care of.

    Wouldn’t it be great to be in Mr. Buffet’s position? Even so, any giving is better than nothing, and it’s certainly helped me become a better person, giving away of my earnings to a good cause.

  7. says

    My parents donated almost 20 percent of their net worth when they retired. Because they wanted control over how the money was spent, they formed a foundation, invested the money in dividend-yielding ETFs, and each year, they keep the principal amount intact and use the dividend payouts to pay boarding school tuition for orphaned children in a developing country.

      • says

        Nope; if they had to rely solely on their retirement savings, they’d be in trouble. They have only a few hundred thousand saved for retirement (they’re 70) and they live in a townhouse. Fortunately, they’re also from a generation that receives a nice pension from their employer. Their pension is $60,000 a year, which they live on … meaning they don’t really need to touch their retirement savings unless there’s an unexpected financial emergency.

        Part of the benefit of supporting kids in developing nations is that the U.S. dollar stretches a lot further there; one year of boarding school tuition in Kathmandu is $1,200. (We negotiated the rate down from its sticker price by a couple hundred). Currently we sponsor 3 children.

        • says

          Ahhh, the pension. I so wish I had a pension! If you capitalize the pension, it’s worth millions the longer they live.

          $1,200 for boarding school tuition sounds like a bargain!

  8. Mike Hunt says

    8% of gross income cash donation to various charities in 2010, I think anything over 15% will be looking fishy to the IRS.

    Maybe it depends how easy it is to check out and then try and collect more taxes…

    -Mike

  9. Justin says

    Powerful article. Its percentage of people who donate with less than $20,000 in income amazes me. I donate monthly, but always feel I could do much much more.

  10. says

    Call me a prude, but I’m not much for donating. I donate irregularly, often spontaneously, and I’ve donated only to organizations that I know a lot about, or ones that I think actually do good work with the money they bring in.

    One of my favorite charities, by far, is http://www.heifer.org/# Heifer International. They’ve got an approach that I wish other charities would follow in giving things to people that keep giving. You can, for a very low donation, provide people in impoverished countries not with food, but with animals that produce food.

    For $500, you can donate a milk cow to a family. The site says, “A good dairy cow can produce four gallons of milk a day – enough for a family to drink and share with neighbors. Milk protein transforms sick, malnourished children into healthy boys and girls. The sale of surplus milk earns money for school fees, medicine, clothing and home improvements.”

    I like Buffett’s approach in paying it forward once you’ve accumulated all that you could. Sure, he could have donated a billion 30 years ago, but I guarantee his portfolio did better than any charity organization on the planet.

    That said, eventually I want to be able to donate in larger sums, but I’ll definitely be paying myself first until then. As for now, spontaneous and small donations still work their way in.

    • says

      It’s cool. As a student, I don’t think anybody would expect you to give much of anything at all! Instead, it’s really just time and maybe knowledge eg blogging and sharing your knowledge.

      Just wait until you make lots of money and pay lots of taxes! You’ll certainly feel like it’s giving!

    • Anna says

      I always think it’s a good idea to do a lot of research on a charity before giving. I’m very skeptical of this charity, as I think providing milk to malnourished children is not a huge help – once humans stop breastfeeding, our bodies naturally stop producing lactate, which is required to break milk down. In our western society, we continue drinking animal milk, which ‘tricks’ our bodies to continue producing lactate. However, most children in the poor parts of the world who don’t have access to milk as children are lactose intolerant, and won’t be able to drink or benefit from milk. Also, animals require a LOT of food for sustenance – think about how much grain/grass a cow would eat in an average week. In countries where famine and drought are the way of life, producing enough crops for the humans is hard enough, let alone having another HUGE appetite to fill. The milk a malnourished cow would produce is not ‘gallons a day’, and without access to large amounts of clean water, the animal will most likely perish from disease or malnutrition. I’d like to see some evidence that this type of giving is actually helping communities…

  11. Norman says

    Why would anyone compare the percentage they are giving to charity with what anyone else is giving? Because they care too much what other people think and aren’t giving for the right reasons. Also, I do not think giving tithe to a church should be considered giving to a “charity” and should not be deductible for tax purposes. For the most part the money stays with the church to build new buildings, pay for the best preachers and song artists, etc, etc, etc. Yes, some churches reach out to the poor but it is a very small percentage of what they take in. Oh, by the way, when the non-working rich pay the same percentage tax on their dividend income that I pay on my wages, we can talk about income redistribution.

  12. says

    I think in order to make it a complete comparison we should try to factor in the time and expertise some people donate to charity as well. As a student I know I donated hundreds of hours to charities. I may not have a lot of extra money (although I had very little income, so as a percentage, I might have been on the low end of your average) but the time I donated would have definitely been worth a lot more than most people give. If someone donates their unique skills as a professional or tradesman, this is obviously even more valuable.

  13. says

    Are you suggesting the stingiest group of givers are rich Democrats, ha ha!

    Seriously though I am not surprised by the poor people giving the most %, many poor people are more likely to have been in a position to know someone who needs or have needed charity so it;s more known how helpful it is.

    I guess the democrat ideology is that no one would need charity if the gov could provide for everyone whereas Repubs believe that giving should be done out of choice so. I can see good and bad to both sides.

    I don’t have a % that I give, just give what I can, when I can. It’s likely when the debt is zapped that I will get my contributions up higher again.

    • says

      Ha! Not suggesting anything at all mate. I was curious to know, so after some research, this is what I found.

      I guess the Democrats vs. Republicans giving debate is a whole other topic! A lot of it is tied to religious reasons.

  14. says

    From the very first job I had out of college, I have set aside 10% of all base / bonus to charity. That has increased through the years as I have made more money. I still give a fixed percentage today, though I do not track it. In addition, there are several instances of one offs, i.e. Katrina, Japan, etc.

  15. says

    I didn’t used to give much at all and felt like I couldn’t afford it. Once I started planning where every dollar went, suddenly I could give regularly.

    My percentage is 3% now, but will increase next year when the last non-mortgage debt is paid.

  16. says

    I start out with 10% of my net income but I also give 10% of anything that comes back from taxes. In addition, I volunteer my time to charitable organizations because often that is more beneficial for them than the cash it would require to hire someone to do the job.

  17. Janna says

    Sam, I don’t understand your point: “My fear is that it becomes more difficult to give more if you are making much more due to how much you get taxed.” Seems it should be just the opposite!!

    If a poor person who pays no taxes gives $100, he has given $100 of what would have been his to charity. If a person with a marginal tax rate of 45% gives $100, he is only giving $55 of what would have been his to charity because $45 of that would have gone to taxes had he not donated it. So it is really much easier for a rich person to donate.

    Also, even for people who do pay taxes, at the lower income levels, they may not own a house so they may not be itemizing deductions, in which case they can’t deduct their charitable contributions. So if you are not itemizing, if you give $100, you are giving $100 of what would have been yours.

    Remember – No matter what you are taxed, the more you make, the more you make. Sometimes you seem to imply that people who have low income and pay little or no taxes are somehow better off than people with high incomes and high taxes.

  18. Patrick says

    Charity? are you kidding? My taxes go to build the roads and bridges I use for work. They create the infrastructure of my city. They go to support my local schools and public universities that educate my children and support the creation of my future employees for my business. Taxes support services I need in an emergency like the Police and the Fire Department. If they’re national taxes they go to support these same items in other states as well as defense which keeps our country competitive and keeps my assets at least somewhat safe. Taxes are used to protect my well being with programs like the FDA. My taxes go to support everyone else in the community and society. Charity? do some homework bro. These items are worth it.

    • says

      So how much did you pay in taxes in 2011? We can compare with mine.

      I think if one pays up to $40,000 in Federal Taxes a year, that’s fine. But more than that? I don’t think we’re getting anything more in return.

      • Bill says

        I have to disagree with Patrick. Paying taxes so the government can build a soccer field at Gitmo for inmates is not worth it. Paying taxes so the government can use 43 cents on the dollar to pay interest to China is not worth it. Paying taxes for drone strikes which often kill women and children is not worth it.

        • Tyler says

          Patrick makes a very good point,
          Taxes directly benefit those who pay taxes. Taxes are more like burden-sharing or Mutual aid than charity. 55% of the 2011 budget was spent on defense, social security, and medicare/CDC/health services.* These expenditures directly benefit the citizens that pay for them. An additional 12% is spent on education, agriculture and food safety, transportation/infrastructure, government, international affairs, scientific research, and labor regulation. These expenditures also benefit those who pay for it. 7% of the budget goes to debt repayment which doesn’t directly benefit anyone but also doesn’t even resemble charity. These expenditures account for 74% of the budget.

          The remaining 26% could possibly be considered charity but I have some major reservations. First, paying for Medicaid (13%) and other social safety net programs (10%) might be considered charitable, but only if you have never and will never take advantage of these programs (Medicaid, Unemployment, Disability, TANF, SNAP, etc). The remaining 3% goes to veterans services (e.g. the VA). Some may see this as charity, I see it as an obligation. If we send our soldiers into harms way–whatever the reason–we are obligated to support them when they return home and to support any recovery they might need.

          So a generous perspective on ‘taxes as charity’ could allocate, at most, 26% of taxes as being charitable (if the person in question never took advantage of social safety net programs). A strict perspective would not count any taxes as being charitable. A moderate interpretation would probably lie somewhere in between.

          BTW,
          Bill – I didn’t see the soccer field at Guantanamo itemized in the breakdown of the 3.64 trillion dollar budget or the 139 million dollar Gitmo budget.** I do see that over half of the inmates currently at Guantanamo have been officially cleared for release but continue to be held indefinitely.***
          Also, I don’t like spending 7% (247 billion) of the budget on interest payments (foreign and domestic) anymore than you do, but do you see a better realistic alternative? Reducing national debt and the deficit are important and pressing issues. But most of the national debt is not foreign owned. In 2012, China owned 7.5%, Japan 6.9%, The U.K. 2.8%, and all other countries own a combined 12.7% of U.S. national debt. The remaining 68.6% is owned by U.S. citizens, the U.S. government, and the U.S. Federal Reserve.****

          Sources:
          * https://underthemountainbunker.files.wordpress.com/2012/05/1-14.jpg
          ** http://www.miamiherald.com/2011/11/08/v-fullstory/2493042/guantanamo-bay-the-most-expensive.html
          *** http://www.stopwar.org.uk/index.php/usa-war-on-terror/2462-death-is-preferable-to-life-in-obamas-guantanamo
          **** http://www.american.com/graphics/2012/ConoverS%20PieChart.jpg

  19. N says

    I’m just getting my feet on the ground financially, I’ve only been in the work force for less than 3 years now. I haven’t given much my whole life really (most I ever donated in a single year was about $100) but now I’m giving more. I’m starting off small, just 1% of my after-tax income. But I play on giving a higher percentage of my income each year.

  20. montman says

    “you should feel good that the government is utilizing your income for the greater good……”

    BAHAHAHAHAHAAAAA!!! THAT’S SUCH BULL$HIT!!!

  21. David says

    I like your giving formula, but I think the % should be about 33% not 20%. I do not have the research in front of me, but I understand if one added the Jewish Tithe with their taxes during the period of the Kings they were giving about 33% of their income. I use a similar formula to determine my annual giving, but I do not count my pre-tax IRA contributions as I will give out of that money when I retire. I do attempt to bring in all the taxes – state, local, federal, sales, Vehicle fees, etc. and oddly enough my charitable giving ends up around 10% using this system most years.

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