Giving is a Complement to Wealth, Not a Hindrance

Here are some interesting findings from Stop Acting Rich: ...And Start Living Like A Real Millionaire regarding giving and wealth:

Giving to charitable causes and wealth are complements, not substitutes, as logic might seem to dictate. Two groups of high-income producers were studied. Both groups were statistically identical in terms of income and age. The first group contained those who gave at least 10 percent of their annual realized income to charitable causes each year. The second group gave 1 percent or less. In terms of average dollars amounts [of net worth generated], the first group significantly outpaced the second [by about 20 to 1].

How is it possible that the group which donated significantly more money was able to accumulate more wealth? People allocate their dollars in ways they feel will give them the greatest satisfaction. I believe that these people feel that giving is a substitute for spending more on products and pleasure-related services. They seem to get more satisfaction from accumulating wealth and giving than from consuming more. If you spend a large proportion of your income on prestige brands of products, you have fewer dollars remaining with which to save, invest, or even donate. And those who gave 1 percent or less of their income to noble causes were, in fact, found to spend significantly more and invest much less than their more generous counterparts.

The more generous group was found to have spent fewer dollars on the impediments to building wealth: income taxes, homes, clothing and accessories, motor vehicles, mortgages, interest on personal loans, club dues, and vacations. Those who gave more also had a history of allocating more money to the foundation stones of accumulating wealth, including investments, pension or annuity contributions, and fees for professional financial advice and asset-management services.

Several comments on this:

• Wow, this guy is reading my mail. If you've been visiting FMF for any length of time, you know that this set of comments is pretty much in line with how I think about and manage money.
• Interesting that generosity and wealth accumulation go together, huh? I guess we were on to something when I noted that those who give also seem to do well financially.
• "I believe that these people feel that giving is a substitute for spending more on products and pleasure-related services." Has anyone seen Schindler's List? At the end of the movie Schindler is looking at all the material things he owns (a ring, a car, etc.) and wonders how many more people could have been saved if he had simply not purchased these (indulgences) and instead spent the money on rescuing people.

This is similar to how my wife and I feel about giving to help others. I say "similar" because this line of thinking can lead down a very slippery slope. You start with "we don't need a $500,000 home, we can have a less expensive home and help others with the difference" but taken to an extreme you end up with "why do we need any home -- why don't we live on the street and give everything to help others?" So there's a balance between sacrificing yourself/helping others and providing reasonably for your family as well as having extra to save and enjoy.

• But that said, why would we need to drive a Lexus when we're just as happy driving a Subaru and helping others with the difference? Why live in a $500k home (which we could afford to do) when a $170,000 (2,800 square feet, btw) house is just as good to us and allows us to give more? Why buy designer clothes so we can tell the world how wealthy we are when there are often less expensive alternatives that are just as good? Then we can give more to stop some of the problems in the world.
• There are people dying every day because they don't have enough food to eat, clean water to drink, the right medicines to take, and so on. I would prefer to "make do" (which really isn't making due -- I don't think I would enjoy the more-expensive alternatives any more than I enjoy what I have) and then give to help save some people from around the world rather than spend, spend, spend on myself.
• I'm not trying to make the above a guilt-trip for anyone or even saying that those reading should do the same. In fact, I'm acting in my own best, selfish interest. I'm doing something (giving) that gives me more joy than something else (spending on myself.) The joy of helping others is almost addictive, as you will find out if you ask anyone who likes to give (or if you're such a person yourself.) That said, I wish more people would discover the joy of giving versus spending more on "things."
• "They seem to get more satisfaction from accumulating wealth and giving than from consuming more." I've covered the latter above, but I just wanted to add that I do also get satisfaction from accumulating wealth as well. Call it independence, call it freedom, call it peace of mind -- name it what you will -- but there are a lot of great, intangible feelings associated with becoming wealthy that money simply can't buy. Oh wait, I guess money can buy them. ;-)
• We certainly spend less on things like homes, any sort of debt (we have none), club dues, and the like and more on investing, saving, and related activities. Yes, I practice what I preach.
• Wait! You mean "annuity contributions and fees for professional financial advice and asset-management services" are part of "the foundation stones of accumulating wealth"? Hmmmm. I don't spend anything on these (unless you include the low costs associated with investing in index funds.)

What about you? Does any of this ring true with your own giving/saving/investing experience?

Comments

[Rob]

I would agree with this sentiment. It does seem a bit counter intuitive but when you really think about what you are doing when you give, it makes sense. Since people that give a significant amount are not only thinking about themselves, they are more aware of the fact that they do not need lots of stuff (or at least not as much stuff).

About a year ago my wife and I had thought about reducing our amount of giving so we could pay off our debt faster. That only lasted a few months and now we are back to giving our set amount. I'm glad we did not continue giving less; because we chose to set aside a certain amount we have been able to greatly help some people along the way. Had we reduced our giving it would have severely limited our ability to help others.

[StLPastor]

This is the first article about giving increasing your wealth that actually made sense to me-that the practice of giving means living within your means, means paying attention to things other than immediate gratification and the fleeting pleasures of consumption, which means financial success. I like it. I am going to have to use this in a sermon sometime this year.

[My Personal Finance Journey]

I completely agree with this line of reasoning. In a book I was reading recently by T. Harv Eker, called the Secrets of the Millionaire Mind, he also reinforces that contributing 5-10% of your income to charity is one of the key steps towards shifting your mindset to becoming a millionaire.

For me personally, contributing more towards charity was one of my key financial goals for 2010, and subsequently, has made me become more cognicent of other frivoulous spending.

Jacob

[kt- lifedividend]

i agree with what he says in the way of managing money. I am very much averted to unnecessary debt and i avoid them whenever i can. i would not borrow cash to buy something that i do not need. The problem is that television has made us think that millionaires buy everything that they see and this is not true. So when a guy gets some money he starts living the often skewed definition of millionaire status dream he has and we all know how that ends

[Budgeting in the Fun Stuff]

I donate my time, which feels great and keeps me busy. You can't be spending money if you're walking shelter dogs...at least, you can't if you don't own a smart phone (I just had a quick flash in my head of someone with a smart phone surfing Amazon or Ebay during their walk, lol).

[Mark]

People with a mindset that includes giving are probably more self-disciplined, less selfish, and think "bigger-picture" than those who are mostly focused on spending and consumption.

The ability to give also implies that there is money (either leftover or prioritized) for others when their spending is done for the month. Not surprising that there would also be money left over or prioritized for saving.

Also - those who take pleasure in giving obviously feel that the pleasure outweighs the "pain" of losing the money. Most likely they feel similarly about the defered gratification of saving (giving up something now to be rewarded later).

And finally, if giving involves seeing that others are worse-off than you are, then you don't feel the societal pressure to spend. This effect is the same as living in a less-upscale neighborhood, where there is less pressure to buy expensive cars, take expensive vacations, etc.

Where I disagree with many articles on giving is that they imply that giving somehow CAUSES wealth. I think that wealth and giving are correlated, but not causal.

[Finance4youth.com]

@Bob: I just wonder how much more you would be able to give if you would pay off debt first?

I'm all for giving when and how one can. I start worrying when people (not you Bob, but other people I have known over the years) give before their own house is in order. Giving should come from extra money, because life's circumstances might mean that this money might stop in the future.

On the other hand, there are more ways to be generous than with a checkbook. Time is great, as are labor and experience. Even if you don't have $$, you might be able to go help someone.

[Stephan]

while i have no problem with helping others i never understood why people would prolong their debt to continue giving at a set amount. anyone care to give a rational explanation? Again, when i have money to give i do, but i would never consider staying in debt just so i can continue giving at a predetermined amount.

[mysticaltyger]

@finance4youth.com: In theory, it's true. Giving should come with extra money. But here's the thing...in a country like America, almost everyone blows money on stuff they don't need, so almost everyone can give. Heck, I see plenty of homeless people who find the money for cigarettes and alcohol. So, it's almost always possible to give something, however small.

[DC]

It is the fact that they are thoughtful about their money, which makes them wealthier.
Consuming less, investing for the future and giving are a consequence of being thoughtful about what you do with your money. Not the other way around.
Even though I support giving, the fact is that you can still be thoughtful about your money, and rationally save, invest and still not give. That still makes you wealthier that the norm. Now whether it makes you happier it's another question, but wealthier? for sure.

[ILIQ]

Great points. An individual that gives is truly in a different frame of mind the wanton spender. I don't think the man who bought the $200 dollar pair of jeans gets the same satisfaction from an equal dollar donation to a worthy charity close to the giver's heart.

I too am in accord with your sentiment of not needing an oversized home. Those rooms need furnished, heated and maintained all just for status quo. Not everyone is as capable of seeing what truly matters. Perhaps not knowing just how good you've got it is the culprit.

[Concojones]

Let's be careful with jumping to conclusions.

People who give more, are wealthier. So giving makes you wealthier? (or is it the other way around?)

Where you see lots of umbrellas, it rains more. So umbrellas attract rain? (or is it the other way around?)

Just playing the devil's advocate here. While it's counter-intuitive, I'm open to the possibility that giving makes you wealthier. It certainly makes you FEEL wealthier!

[Concojones]

I wonder if giving could have a similar effect as doing what you love - let me explain:

It's often said that you should do what you love (for a living), and that the money will follow. The rationale behind this is that you'll be doing more your best, so you're more likely to become successful.

Could the same apply to giving? It makes you feel like you're being your best self, and it stimulates you to continue to be your best self. And that of course could very well lead to financial success.