Do Rich People Give Less?
Charity contributions is a huge element of our economy and a critical choice for most people in their lives today. Individuals in the United States donated $292 billion to charitable organizations in 2018, accounting for around 1.4 percent of the country’s gross domestic product.
Approximately 30 percent of the total household contributions in 2016 came from households with incomes of more than $2 million (0.1 percent of the population). Although there is no systematic or trustworthy research to support this, the well-off have been portrayed as being less charitable and compassionate than the poor. It is critical to understand the relationship between income, wealth, and charitable giving because it has important implications for policies such as tax rules that are intended to encourage charitable giving.
The relevance of charity services becomes even more apparent during the coronavirus crisis, when the demand develops in the face of a government that is already pushed to its limits. It is critical to understand how charity giving is dependent on income and wealth, both of which have suffered significantly in recent years, in order to assist charities and politicians in becoming more successful.
Even though there is no systematic or trustworthy data to support this claim, those who are well-off have been portrayed as being less giving.
The Facts are as follows:
A variety of criteria may be used to describe and evaluate generosity. The percentage of a person’s (or household’s) income that is donated is the most often quoted statistic for generosity. However, there are many various methods to assess generosity, including the chance of contributing anything, the quantity contributed, the percentage of one’s wealth donated, and the amount of time one devotes to charitable activities. When it comes to a particular metric, multiple data sets provide wildly disparate answers.
The IRS tax return data only provides information on giving for families that opt to itemize their gifts; as a result, many lower-income households are left out of the statistics (see here). Lower-income families that contribute enough to be able to categorize their donations must provide a greater percentage of their income and are more likely to give from their accumulated assets (for example older, retired filers with savings).
Even while it is theoretically correct to refer to these families as “low-income,” doing so leads to incorrect inferences about how the “% of income contributed” varies by income. Families with more assets and lower incomes, as well as those in their retirement years, demonstrate that wealth is an essential aspect to consider when analyzing people’s donating behavior (see here). However, estimating wealth is challenging, because wealth is not often reflected in surveys.
According to our latest estimates, donating as a percentage of income is pretty stable throughout the income spectrum. Using the Panel Study of Income Dynamics (PSID), which is a nationally representative survey that includes information about income, wealth, and charitable giving (both religious and secular), as well as demographic characteristics such as age, race, religion, and education, I conducted an analysis with my colleague Jonathan Meer.
Our findings are based on a survey of the same 10,665 families conducted every other year from 2000 to 2016, regardless of whether they were itemized or not, and with incomes that reflect around 99 percent of the population. We estimate that the average proportion of income contributed to charity spans from 1.44 percent to 2.01 percent across income levels, indicating a generally flat connection between the two variables in our study.
This is in contrast to studies that have discovered either a “U-shaped” or a “reverse J-shaped” giving curve: those at the bottom of the income distribution giving the largest proportion of their income, those in the middle giving the least, and those at the top giving somewhere in the middle of the income distribution giving the most.
However, these other studies do not adequately account for the distorting influence of outliers, particularly low-income but high-wealth families, which may be significant. For example, according to our statistics, the lowest-income category – which includes families with incomes up to $11,200 – contributes on average more than 33 percent of their income, while the average for all other categories is just 1.84 percent. These individuals include both the poor and those who have great wealth but modest yearly earnings, such as wealthy retirees, who fall into this category.
Households with more income and wealth are more likely to make any amount of donation and to make larger donations. For example, households in the highest income group in our data (with an average annual income of $414,400) are 27 percentage points more likely to donate any money than those in the lowest income group, and they give 16 times more than those in the lowest income group, even after controlling for factors such as age, level of education, number of children, and location of residence.
In general, the percentage of persons who donate rises in direct proportion to their income and wealth. It should come as no surprise that this pattern holds true for donation amounts as well, given that these families have a greater pool of money from which to draw.
When a family’s income or wealth rises, they are more inclined to contribute and donate more money, according to research. For example, views of the efficacy of charities, opinions about the role of the government in social service provision, and preferences for giving to others are all unobserved variations across families that we believe may have an impact on donating.
The consequences of this would be that our knowledge of the link between income and giving would be hampered if, for example, persons with high incomes varied from those with low incomes in their giving preferences. It is possible to assess how changes in income and wealth within a family impact charity contributions in order to account for these discrepancies. In a similar vein to what was said before, as families get wealthier, they are more inclined to contribute and to donate more money.
A family whose yearly income increases from $60,000 to $70,000 (about a 17 percent increase) is estimated to be 2.2 percentage points more inclined to contribute and gives around 26 percent more, all other things being equal. According to our estimates, an increase in a household’s wealth from $150,000 to $200,000 increases their likelihood of donating by 1.59 percentage points and increases their overall giving by 9.8 percent.
Good statistics on the extremely rich is difficult to come by, yet they are significant contributors. Despite the fact that households with annual earnings of more than $2 million make up a large share of overall giving, our data only provides two examples of such households. Because of the scarcity of statistics on these families’ income, wealth, and charitable giving, it is difficult to draw precise statements about them. Using the IRS Statistics of Income data, we may make some educated guesses about the income levels of such “very-high-income” individuals. Giving rises as income grows in all three of our donating indicators – the chance of giving anything, the quantity given, and giving as a percentage of income – and this is true across the board. 88.3 percent of families with incomes between $2 and $5 million make charitable contributions, with an average contribution of 3.44 percent of their income.
When compared to families earning $10 million or more each year, 95 percent of whom contribute and who give an average of $2.6 million, this is a significant difference (approximately 8.6 percent of their income). Due to the fact that these values are derived from less precise data, we should use caution when extrapolating them to broad conclusions.
No matter what their income or fortune is, people contribute to the same sorts of charity every year. The widely held belief that low-income families make their charitable contributions primarily to religious organizations, whereas high-income households make their contributions mostly to non-profit organizations such as museums, art galleries, and private schools, is not entirely correct. According to our findings, low-income households devote the greatest proportion of their charitable contributions (43 percent to 55 percent) to religious purposes (houses of worship as well as other religious causes), but so do those at the top of the income distribution, who devote 32 percent to 39 percent of their charitable contributions to religious purposes (see chart).
We found that households in the highest income bracket contribute almost three times as much to religious charities than they do to the arts and education combined. More broadly, there is considerable variation in the precise proportions of overall giving assigned to various causes across both income and wealth distributions, but the pattern is fairly consistent: on average, individuals choose to contribute to similar sorts of organizations regardless of their financial resources.
What this Really Means:
During their lifetimes, we find that the affluent are at least as giving as, if not more so than, the poor when it comes to monetary gifts.
When examining donative behavior, it is obvious that household wealth should be taken into consideration since families contribute out of their current income and wealth. Despite the fact that richer individuals contribute more money in absolute terms, it is not always the case that the sorts of people who are affluent are intrinsically more generous – families donate more money when their own income and wealth rise, for example.
It seems that the prevalent belief that wealthier individuals contribute a lesser percentage of their income is incorrect, based on patterns recorded between 2000 and 2016. It is conceivable that the evidence up to this point has been influenced by outliers, inadequate data throughout the income distribution, or estimating methodologies that are difficult to understand.
Why do the Rich Give?
a) Belief in what you’re fighting for
The desire to modify or improve society’s processes or structures in accordance with a specific interest or belief was the most powerful motivation, and choosing a cause was frequently affected by this.
a) Act as a change agent
Making a genuine impact in society, institutions, or individual lives, as well as receiving good value for money, are examples of this.
c) Achievement of one’s full potential
This includes the gratification of personal growth, such as using knowledge in a different industry, gaining new skills, directing money that would otherwise go to the government, addressing concerns with a personal connection, and establishing a historical site.
c) Responsibilities and duties
It’s all about satisfying one’s conscience, fulfilling one’s commitments to others who are less fortunate, and wanting to “give back” to society.
e) Interpersonal relations
This refers to the satisfaction, fulfillment, and personal fulfillment that may be found in a variety of partnerships. Senior charity personnel, beneficiaries, and other contributors might be among them.
Some industries and communities rely heavily on donor networks. Some may be swayed by a desire to join such networks.
Having more money was evaluated as the component most likely to make a difference among the variables that may raise an individual’s overall level of donating. The second most significant reason, and the primary one for over half of those who replied, was finding a new cause about which they were enthusiastic. Around a third thought that better tax incentives were crucial.
The recipient’s relationships
Donors who sense they are making a difference, who are appropriately recognized, and who meet like-minded others get reinforcement beyond their original contribution. One of the most important factors in the creation of a long-term commitment to a specific organization, and by extension, to the practice of philanthropy in general, is how the receiving organization handles its relationship with the donor.