Year-End Giving November 11, 1998March 25, 2012 I was interviewed for Charities Today. It occurs to me that some of you may not in fact see Charities Today on a regular basis, and that — as we are approaching the "giving season" — a slightly edited version might be of interest here. Note that if you do give to charity in fairly significant chunks, it’s cheapest to give appreciated securities — stocks that have gone up — that you’ve held more than a year. (Never give appreciated securities held less than a year, because you will only be allowed to deduct your cost, not their value; and always be certain to transfer the shares to the charity before they are sold.) Charities Today: Can people afford to be philanthropic, even when they’re being frugal? Well, I suppose the more frugal they are, the more they can afford it. One motivation for frugality is to become rich, in which case "giving" handicaps you a bit (but some will still want to do it). Another motivation is to "live lightly on the land" and in a world of so much poverty, etc., not live too lavishly. In that mindset, giving fits in fine. I think a lot of it is just who you are. If you grew up knowing that your family or "your people" gave at church or wherever, you just see that as one basic expense born of your core values. Maybe not a big expense — $10 a week at the church — but just part of who you are. But of course you don’t need to belong to a formal church to feel this way. Many of us who grew up in the ’60s just got used to giving. The line we learned then: "If you’re not part of the solution, you’re part of the problem." CT: How much should people give? There is no "should." Giving is voluntary. It’s not like tipping, where it’s theoretically voluntary but you basically have to leave 15%. According to the IRS, the typical American who itemizes deductions gives 3% of adjusted gross income. The Bible says 10%. And 30% is the IRS cutoff for deductibility (with the balance carried forward up to five years) when you give appreciated securities, 50% when you give cash. Everyone is different. Some people pay higher taxes than others do; having kids or not having kids makes a difference. Still, it does seem as if the proportion should rise with income — that those earning big bucks are better able to give a large percentage than those barely scraping by are. If you really want someone to tell you how much is enough, I suppose you could do worse than to take a tip from God. God says 10%. Then again, He may not have been figuring FICA into the burden you already have to bear. CT: What do you think of the philanthropic activities (or even lack thereof) of today’s wealthiest citizens: Ted Turner, George Soros, Warren Buffett, Bill Gates, and others? The first thing to say is that no matter how much money you have, it’s your money. You don’t have to give away a penny of it. The second thing to say is that, interestingly, rich people seem to take that first thing very much to heart. Many are generous — some, like George Soros, magnificently so — but by and large, the rich are different from you and me: On an after-tax basis, as a proportion of their income, they give less money. Going back to the IRS figures, the average for charitable deductions in the higher income ranges is a more or less flat 3% of adjusted gross income. In other words, there’s no increase as you go up the income scale. In absolute terms, of course, this means the rich are much more generous than the rest of us — 3% of $5 million is a heck of a lot more than 3% of $35,000. But because the $35,000-a-year family doesn’t itemize deductions, that 3% is really 3%, whereas for a millionaire — especially one living in a high income-tax state like California or New York — it’s more like 1.6% after tax. And the millionaire probably gives appreciated securities, which provides yet more of a tax benefit. So you might say that, on a strict after-tax percentage basis, the rich give only about a third as much as the rest of us. To be sure, the rich also pay a heck of a lot more in taxes, and many presumably feel that in so doing they’ve more than done their share. But the presumption here is that giving, if one could afford to, is something one wouldn’t want to do. Yet when you look at all that needs doing, and how tantalizingly close we are as a species to making this thing work (or else having it all blow up in our faces), it turns out that there’s nothing some people would rather do. CT: So why don’t people give, or give more? People don’t need to find reasons to justify their not giving. As I say, it’s their money. But those who don’t, yet could afford to, are missing out on one of wealth’s greatest luxuries. CT: Once people have decided to give, should they do it now or [when they die]? Warren Buffett’s plan is to do most of his giving after he’s gone, perhaps on the theory that every dollar he gives now is $20 or $40 he won’t be able to give later — he surely compounds wealth faster than any charitable foundation could. Yet, ironically, the cause he’s singled out for special attention (as have other smart folks like Ted Turner and the late David Packard) — population — has a certain compounding dynamic of its own. It took 10,000 human generations for the population to reach a billion. Now we add a billion every 13 years. Not being able to compound my money at anything like the rate Warren Buffet does, I figure I’d better not wait. We need both approaches. If everyone gave away everything now, and for current needs, it would sap strength from tomorrow. If no one gave now, there might not be a tomorrow. CT: What’s the best way to choose a charity? Consider it a "social investment" and make decisions about asset allocation among investment types. That is, first you decide how to allocate funds between "asset classes" such as education, church, the environment or the arts, say, then decide which specific "securities" — or charities — are the best in each class. Education, health, civil rights and auto-insurance reform are my four biggest. Obviously, most people, including me, aren’t this methodical in their decision process. They give to their friends when asked; they’re true to their school; and they react spontaneously from time to time when they see something particularly poignant in the newspaper or on TV — the equivalent, I suppose, of acting on a hot tip. Still, one can "play the market" haphazardly with some of one’s money while still attempting to have a rational, effective plan for the rest. CT: What do you like to see in a social investment? Low overhead and fund-raising costs lead the list. But even more important: leverage. Take, for example, MESAB-Medical Education for South African Blacks [2101 East Jefferson, Rockville, MD 20852]. For $10,000, you can provide the funds to train a nurse, or almost half a doctor. By now, MESAB’s assistance has helped to train something like 10% of all the black medical professionals in South Africa. The leverage here, of course, is that each additional young medical professional will impact thousands of lives in his or her community, both in specific illness-curing and lifesaving situations, but also in helping to educate on general issues of health and hygiene. Not to mention helping South Africa, in a tiny way, to build a successful multiracial, tolerant society that one day could be a model for the rest of Africa and beyond. I’m not suggesting you contribute to any or all of the things I do. I’m just sharing the equivalent of "stock tips." Like most tips, you will and should ignore them, pursuing, instead, your own social investment goals.