Are Rich People Really Less Generous?
Texas A&M University
Charitable giving is an important part of our economy and a significant household decision. In 2018, individuals in the United States gave $292 billion to charities – approximately 1.4% of GDP. Households earning over $2 million (0.1% of the population) gave about 30% of the total household contributions in 2016. Yet the well-off have been characterized as being less generous and uncompassionate, though there is little systematic or reliable evidence to support this. Understanding the relationship between income, wealth, and charitable giving has important implications for policies like tax rules that attempt to incentivize charitable giving. The importance of charitable services is especially acute during the coronavirus crisis when need grows in the face of an overstretched government. It is important to understand how charitable giving depends upon income and wealth, which have taken a big hit, to help charities and policymakers be more effective.
The well-off have been characterized as being less generous though there is little systematic or reliable evidence to support this.
- There are different ways to define and measure generosity. The most often cited metric for generosity is the percent of income a person (or household) gives. But, in fact, there are many different ways one could measure generosity, including the likelihood of donating anything, the amount donated, the percent of wealth donated or time spent volunteering. Even for a given measure, different data sets offer different results. IRS tax return data only contains giving information for households that choose to itemize their donations; this leaves out many lower-income households (see here). The lower-income households that give enough to itemize necessarily donate a larger proportion of their income and likely give out of accumulated assets (for example older, retired filers with savings). Calling these households “low-income” is technically true but leads to inaccurate conclusions about how the “percent of income donated” varies by income. Giving by lower-income, higher-asset, retirement-aged households illustrates that wealth is an important factor to consider in people’s giving behavior (see here). But wealth is difficult to estimate and not always recorded in surveys.
- Our new estimates show that giving as a percent of income is relatively flat across the income distribution. Together with Jonathan Meer, I conducted an analysis using the Panel Study of Income Dynamics (PSID), a nationally representative survey that includes information about income, wealth and charitable giving (religious and secular, separately) as well as demographic characteristics including age, race, religion and education. Our results are based on the survey of the same 10,665 households every other year from 2000 to 2016 regardless of itemization status, with incomes that represent roughly 99% of the population. We estimate the average percent of income donated to charity ranges from 1.44% to 2.01% across income groups – a relatively flat relationship. This contrasts with studies that find either a "U-shaped" or "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 between. But these other studies do not appropriately account for the distorting effect of outliers, especially low-income, higher-wealth households. For example, in our data, the lowest-income group – including households with income up to $11,200 – give, on average, over 33% of their income without adjusting for outliers, while the average for all other groups is 1.84%. But this group includes both impoverished people and those who have substantial wealth but low annual incomes, such as rich retirees.
- Households with more income and wealth are more likely to give any amount and donate more money. For example, households in the top income group of our data (average income per year of $414,400) are 27 percentage points more likely to donate any money than the lowest income group and give 16 times more, even taking into account characteristics like their age, level of education, number of children and where they live. More generally, the proportion of people donating increases with income and wealth. It’s not very surprising that this trend also holds for amounts given, because these households have more resources from which to donate.
- When a household’s income or wealth increases, they are more likely to give and donate more money. There are unobserved differences between households that we think might affect giving: perceptions about charities’ effectiveness, beliefs about the role of government in social service provision, and preferences for giving to others, to name a few. This would impair our understanding of the relationship between income and giving if, for example, people with high incomes differed from low-income people in these preferences. In order to account for these differences, we can estimate how changes in income and wealth within a household affect charitable donations. Similar to above, when households get richer they are more likely to donate and give more money. For example, we estimate that a household whose annual income rises from $60,000 to $70,000 (roughly a 17 percent increase) is 2.2 percentage points more likely to give and donates approximately 26 percent more, all else equal. An increase in wealth has a similar effect; we estimate that an increase in a household’s wealth from $150,000 to $200,000 makes them 1.59 percentage points more likely to donate and give, on average, 9.8 percent more than before.
- Good data on the very wealthy are hard to come by but they are important givers. Households with incomes of more than $2 million per year make up a significant portion of total giving, but our data only contains two such observations. It’s hard to make definitive claims about these households because data on their income, wealth and giving are sparse. We get some rough estimates for such “very-high-income” people using the IRS Statistics of Income tables. For all three of our giving metrics – the likelihood of giving anything, the amount given, and giving as a proportion of income – giving increases with income. 88.3% of households making between $2 and $5 million donate and give, on average, 3.44% of their income. Compare that to households making $10 million or more each year, 95% of whom donate and who give an average of $2.6 million (approximately 8.6% of their income). However, we should be careful to draw generalizations from these numbers, given that they are drawn from less detailed data.
- People donate to similar types of charities regardless of their income and wealth. The common conception that low-income households predominantly give to religious charities while the donations of high-income households are tilted more towards nonprofits like museums, art galleries, and private schools is not fully accurate. Our analysis indicates that low-income households allocate the largest proportion of their giving, 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 allocate 32 percent to 39 percent (see chart). Households in the top income group in our data give almost three times more to religious charities than to the arts and education combined. More generally, across both income and wealth distributions there is some variability in the exact proportions of total giving allocated to different causes but the pattern is remarkably consistent: on average, people tend to give to similar types of charities regardless of their resource level.
What this Means:
When it comes to monetary donations during their lives, we find that the rich are at least as generous, if not more so, than the poor. It is clearly important to take household wealth into account when analyzing donative behavior because households donate out of existing income and wealth. While wealthier people do give more in absolute terms, it is not necessarily the case that the types of people who are wealthy are inherently more generous - households donate more as their own income and wealth increase. According to trends observed from 2000 to 2016, the popular conception that richer people give a smaller proportion of their income is wrong. Prior evidence to this point is likely driven by outliers, insufficient data across the income distribution, or estimation techniques that muddle interpretation.