Filed under: Investing
Income disparity is widely reported in America these days. It turns out there is also significant disparity in charitable giving as a percentage of income. And it may not be what you expect. Why might this be? You might consider it in your own charitable giving.
A recent study shows that wealthy Americans are giving less of their income, while poor and middle-class Americans are giving more. Covering the recession period and after, from 2006-2012, The Chronicle of Philanthropy study used tax records of people who itemized their deductions to determine their inflation-adjusted level of giving within socioeconomic and geographic groups. Although this does not account for all charitable giving -- namely, from those people who don't file itemized tax forms -- the amount of giving included in the study represents about 80% of the total.
In fact, the percentage decrease at the top levels of income almost mirrors the increase at lower levels of income. Since 2006, Americans earning $200,000 or more decreased their charitable giving by 4.6%. Americans earning less than $100,000 increased their giving by 4.5%. This is a surprising result, given that average incomes among lower- and middle-class Americans decreased during this period, whereas the incomes of wealthy families increased significantly.
Why might people who are earning more give less, while people earning less give more? This is not entirely clear from the data, but here are some possible reasons to consider:
- In some cases, wealthy people have considerably more complex finances, with resources in different institutions and a range of funds, possessions, and investments. That may make it more challenging to determine a generous amount to give.
- The tax deductions gained through itemization may make less of a difference to people with wealth than to those with more constrained resources, so wealthy people may have been underrepresented in the study.
- Lower-income people are more likely to encounter the adverse effects of a downturn and poverty in general. Past studies show that people in more high-net-worth zip codes give at a lower rate than people who live in more economically diverse zip codes. If you never see hardship, you are less likely to empathize with people who are disadvantaged, and your charitable giving may reflect that.
- Similarly, lower-income people are more likely to live in communities where the recession hit the hardest, so they may have seen firsthand the positive effects that nonprofits had in the area.
- Given that there were big increases in Utah and also the "Bible Belt," religion may have played a part in this giving disparity. That giving increase may follow from religious belief or more community engagement through service programs.
How might this affect your overall decisions regarding how much to give and to which nonprofits? First of all, if you're wealthy, include charitable giving in your financial planning so you can navigate the complexity of your finances and set philanthropy giving goals. You may have to reach out or travel to personally see the people your gifts benefit. This will help you understand the issues that matter to you. If you live in a big city outside of the South or Utah, know that your peers may be giving less than the average and could use some encouragement or a role model like you.
And if you're a generous lower- or middle-class American, know that your giving is being recognized. Recent studies have reconfirmed that giving more makes you happier and healthier and can lead to social connections while giving you a feeling of authentic purpose. If you are struggling financially, your charitable giving may help to offset some of the effects of that stressor. Regardless of your socioeconomic level, your charitable giving can feel good and help offset the effects of economic disparity -- in income as well as charitable giving.
Take advantage of this little-known tax "loophole"
Recent tax increases have affected nearly every American taxpayer. But with the right planning, you can take steps to take control of your taxes and potentially even lower your tax bill. In our brand-new special report "The IRS Is Daring You to Make This Investment Now!," you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.
The article Why Are Poorer Americans Giving More? originally appeared on Fool.com.
Copyright © 1995 - 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.