Economics of Giving Back

In light of the holiday season and with the end of the year approaching, I started thinking about giving back to those who are in need and to get the all important tax break. ? Often we’re so busy thinking about what we don’t have, that we don’t realize all that we do have.  Just by living in the United States, a person is better off socioeconomically than majority of the world

inequality
Taken from The Economist

The graph above taken from The Economist shows that the bottom 10% in the US still live a “better-life” than many of the other developed nations.  Interestingly to me, it seems if you’re going to be in the bottom 10%, its best to live in Canada.  This graph doesn’t even include many, many other impoverished, developing nations around the world.

What does this mean to you?  Be thankful if you live in the US or Canada! Even though our household income is in the top 10%, I often feel we barely make ends meet!  I know cry me a river right?  But this chart reminds me whether you’re in the top 10 or the bottom 10, all of us in America are lucky.

So consider giving back to those in need this holiday season, but may I suggest with a purpose.  What I mean is sure it might feel good to hand out some bills to the homeless guy panhandling off the freeway or a check to some cancer organization that sent you stickers in the mail, but do you ever feel invested this way? Give with a purpose.  Sit down and ask yourself, what do you care about?  Are you an animal lover?  Do you know someone who has breast cancer?  Does thinking about inner city kids make you cry?  Education? Environment?  There’s a cause for everyone’s hearts!  I realized I care about healthcare for the poor and children.  So now I exclusively donate to a few handful of  healthcare organizations serving the poor and our family sponsors a child through Compassion International.  As a bonus, sponsoring a child as a family is a fun and educational activity too!  I show my kid pictures of our sponsored child and let them draw pictures on the letters we write.  Supporting causes I care about and watching my donations help a specific organization in whose mission I believe in, makes me, as well as my money, feel invested.

But the flip side of this is NOT giving to things you don’t care about or want to and saying NO.  This is where I’m going to digress a bit, but I’ve noticed some people “donate” their money very indiscriminately.

Let’s talk about a real life case study named Christine.  She has an estimated household income of $75,000 and has at least $5000 in credit card debt and only minimally contributes to her retirement account.  Christine likes to donate to everything.  A dollar or three at the supermarket to fight cancer, some in the salvation army bucket, money for all her co-workers kids fundraisers (but hasn’t even set up a college fund for her own kids).  She donates to random charities that contact her through the mail or happen to be standing in front of Trader Joe’s, lends money to her friend who has a spending problem, and tips excessively.  Incidentally, what is up with tipping jars all over the place.  I’m sorry but I’m not going to tip someone for scooping my $4 ice-cream into a cone.

Your money is a limited resource and it most certainly does not grow on trees.  Don’t you want your money/donations to be used in the best possible way?  Give to something that matters to you and preferably can offer you a tax break.  Now if you really enjoy putting money in the tip jar, I’m not saying not too.  But think before you reflexively stick your dollar or two in there and don’t let those ice-cream scoopers “shame” you into doing it.  True story.

Some suggestions for maximizing your charitable contributions:

-Don’t forget to save your receipts!  Charitable donations can be tax deductible.  You have to itemize your deductions to get the potential tax savings, but if your income is in the top 10% then you probably itemize anyways.  If you don’t, look into it.  While it’s definitely easier to just take the standard deduction, you might be able to save more on your tax bill by itemizing.  The higher your marginal tax bracket, the more you could potentially be saving.

-Along those lines, collect your year end statements if you give a regular amount per month to an organization.  I know sometimes these statements (along with your other important tax forms) are available online.

Give thoughtfully.  So says the tag line on Charity Watch  I was pretty appalled to find out a lot of charities pocket tons of money for themselves.  Now I check out a charity through a watchdog website before making a donation.  Even better is if you have personal ties to the organization, like a church or if you are a volunteer there.

It doesn’t have to be money.  It can be gently used goods, clothes, cars or even your time.  When I went on a nesting, cleaning frenzy during my pregnancy, we ended up donating at least 5 giant trash bags of clothes, electronics and books to Goodwill.  Don’t forget to ask for the receipt. ?

Bottom Line: Giving back is a wonderful thing, but with a little planning you can help yourself out at tax time while you help others.  Any other tips on giving back?  Feel free to leave it in the comments!

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