You
probably read that Microsoft founder Bill Gates and Berkshire Hathaway
founder Warren Buffett have pledged to give at least half their wealth
to charity, and have convinced 38 other billionaires to do the same.
From that, you might conclude that the wealthier people are, the more
generously they contribute to philanthropic causes.
As it turns out,
the situation is exactly the opposite. A recent New York Times article
quotes several studies, including one by Independent Sector, a nonprofit
organization focused on charitable giving, which show that householders
earning less than $25,000 a year gave away, on average, 4.2% of their
incomes. Those earning more than $75,000 gave away an average of 2.7%.
What makes this especially perplexing is the fact that higher income
persons can itemize their deductions and receive a tax break, reducing
the cost of their donations. Thus the personal sacrifice of giving is
even larger, proportionately, for the unwealthy than for people who earn
in the upper 10% of American families.
Another study
cited by the article, conducted by the Center on Philanthropy at Indiana
University, suggests that people of modest means may have more empathy
than those who live more secure financial lives. It found that only a
small percentage of charitable giving by wealthier donors was going to
the needs of the poor: most of it was directed to cultural institutions
and their alma maters--giving which enhanced their own status with their
peers.
An article in The
Economist reports on an effort to get to the bottom of this interesting
disparity. It describes a research project by two professors at the
University of California at Berkeley, reported in the Journal of
Personality and Social Psychology. The professors asked a group of
participants to place themselves on a drawing of a ladder with ten rungs
on it, each representing different levels of income, education and
occupational status. Then they were taken to a room and given ten
"credits," which they were told would represent real money at the end of
the experiment. They were asked how many they would keep for themselves
and how many they would give to an invisible partner on the other side
of a partition.
On average, the
participants gave away 4.1 credits, without any expectation of return.
But those who rated themselves at the bottom of the ladder gave away 44%
more than those who placed themselves at the top. In follow-up
interviews, the study participants were asked how much of their total
income should be given to charity. Those who placed themselves on the
higher rungs said that 2.1% of their incomes was the right number. Those
at the bottom felt that 5.6% was the appropriate slice. Whether the
higher status was inherited or earned seemed to make no difference in
the results; the researchers hypothesized, as did the Indiana University
researchers, that poorer people who experience scarcity first-hand tend
to feel more compassion for others, and this increases their overall
levels of generosity and helpfulness.
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Sources:
NY Times article: http://www.nytimes.com/2010/08/22/magazine/22FOB-wwln-t.html
Economist article: http://www.economist.com/node/16690659
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Sincerely,
Bill Morrissey, CFP® and Tammy Prouty, CFP®
Sound Financial Planning, Inc.
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