Why Do People Give to Charity?

I recently published a post on the Stanford Social Innovation Review website outlining a theory of “why people give” that was centered on Maslow’s hierarchy of needs and the human desire for “self-actualization”.

The comments the post generated highlight a common set of counter arguments that I’d like to address.

“…I wonder if the wealthy individuals who create these foundations do so because they are self-actualized or need a tax break.”

The idea that people give because they “need a tax break” is widely believed, but is completely disingenuous. My professional expertise is in helping people structure the financial side of giving in the best possible way. The definition of “best possible” depends on the person’s goals, but limiting taxes is always a consideration. But let me state this clearly, you cannot legally structure a charitable gift so that the donor receives a net increase in their wealth. If you give away $1,000, you might be able to structure the gift so that you reduce your taxes by as much as $700. But at the end of the day you still have less wealth than if you kept your money and paid the taxes. The idea that wealthy individuals, who are sophisticated about money and taxes would give money away just to generate a tax deduction does not make any sense.

I do get plenty of phone calls from people who are interested in setting up some sort of charitable vehicle for the sole purpose of generating a tax deduction. But once they learn how foundations, charitable trusts and donor advised funds work, they are always disappointed and end up not setting one up.

All that being said, I do think that taxes drive the timing of donations. The decision to part with their money is a difficult one for most people. Even once they decide they want to make a donation, they often stall on actually making the gift. As the end of the year approaches, many donors decide to finally make the gift while it will still qualify for a tax deduction this year.

Comment: “Mother Theresa once said “give till [it] hurts you”. Only giving which hurts the giver in some way is supreme.”

This is another concept that I see a lot, which I simply don’t understand. The idea that Goodness comes from Pain, is deeply rooted in some religions. Personally I believe, as I wrote in my essay, that humans are hardwired to enjoy the act of helping others. Feeling happy and good about helping others is a sign of mental health. Needing to feel pain to feel good about yourself is called masochism.

But let me be clear that I don’t think that all donations are rooted in self-actualization. Certainly, many people (myself included) enjoy the social approval that comes from our peers when we make a gift. But this isn’t bad, this is part of the hardwiring that encourages humans to be social animals.

But there is one criticism of philanthropy that I find compelling; the idea that some gifts are motivated by a reciprocal benefit that is paid in non-monetary terms. For instance, a gift to a university with the hope that it will improve the donor’s children’s chance of acceptance. These kinds of gifts are absolutely real. But they are a small minority of philanthropic gifts. Since it is illegal for a donor to claim an income tax deduction for a gift made in exchange for something of value, these kind of gifts are a problem of our tax code, not a problem with philanthropy.


  1. Jesse Sandoval says:

    Muhammad Yunus points out in his book, “Creating A World Without Poverty,” that half the world’s population lives on two dollars a day or less. The implications of this simple statistic are staggering. I posit that many people who achieve financial success give to philanthropic causes because they feel guilt for the “accident of birth” that quite arbitrarily placed them in a part of the world where they have had the opportunity to survive and thrive. Alternately, I think many feel fortunate that they dodged the misery and stunted life of the underdeveloped world, and “want to give back” to help lift others. As Mr. Spock would say, “It’s the human thing to do.”

  2. Sean, I wanted to echo the point you made about tax versus philanthropic motivations. I work with families in Los Angeles and in my experience, tax planning is only a part of the story of why they give…and not a large part at that. A sense of responsibility and awareness, together with a desire to pass along skills and values to their children (especially in the case of a family foundation) are much bigger motivators. As a caveat, where there is a highly appreciated investment and our client is thinking about selling it, the tax benefits of contributing it into the foundation first to avoid paying capital gains taxes does get relatively more airtime.

    Interestingly, Bank of America had some statistics that support your point. In a “Portrait of Donors” study they released late last year, they asked people how their giving would change were they to receive zero tax deductions. About half of the people responded that their giving levels would stay the same while half said they would give less. The half that wouldn’t change their giving clearly support the point that taxes play no part in motivating their generosity. I would argue that giving less is more a function of predictable budgeting behavior than a motivating drive – as families consider the philanthropic slice of their spending pie, what they pay in taxes informs how much they have left over for philanthropy. So I wouldn’t interpret this as ‘taxes driving philanthropy as much as ‘tax obligations constraining philanthropic capacity’

    Wanted to weigh in. Love the column, keep it up.


  3. Donna says:

    Hey Sean,
    Just to add some recent data to this. We’ve recently completed a survey of a subset of our donor base. One of the questions we asked was “On a scale of 1-5, indicate how important these factors are in influencing your charitable giving in general?”
    The single most definitive response was in this category of response: “I was motivated by the potential tax benefit I would receive” — where a full 52% said it was Not Important At All.

    What did they say was the highest motivator? Seeing something about the “issue” in the news.

    Our average donation on GlobalGiving is about $100, so we are not addressing the same folks you deal with every day, but thought your readers might be interested in a little info on the citizen philanthropy side.
    Donna @ GlobalGiving

  4. Chris G. says:

    I enjoyed the article on SSIR, Sean, and I appreciate your furthering the discussion here.

    I find the arguments that “the wealthy give for tax breaks” and “gift vehicles are tax loopholes” to be cynical, envious, and ultimately wrong, but I think the opinion is understandable. Philanthropy is the interaction point between those with wealth and those with needs, and many of those working to address the problems of our society feel that the circumstances responsible for creating the wealth of philanthropists are the same circumstances responsible for creating society’s problems. I tend to agree with that view, but the very fact that these philanthropists seek to help indicates that they are not the enemy.

    That said, I want to take a different approach to this by asking: what’s wrong with tax breaks as a motivating factor in charitable giving? I mean, they’re called tax “incentives” for a reason, right? The tax code includes provisions specifically intended to encourage charitable giving. Would these critics prefer that we eliminate tax breaks for charitable giving? Sure, there would be less giving overall, but at least we would know it was honest & true…

    Do people buy their family home just for tax reasons? No, but the tax deductibility of mortgage interest is often one of many factors, especially once the decision has been made and the buyer has moved on to determining how much they can afford to spend. I think the same is true of charitable giving.

    The real shame is that more people don’t think about the tax advantages of charitable giving, especially the advantages of donating appreciated securities or real estate. In October, Fidelity Investments published an excellent white paper in which they determined: “the additional annual federal tax savings for Americans who could donate appreciated securities instead of cash is between $2.2 billion and $4.5 billion. Simply put, millions of Americans […] could potentially save billions of dollars or give billions more a year to charity if they understood the tax advantages.”

  5. Sean,
    Two things I’ve learned about working with families of wealth and their foundations:

    1. Never confuse wealth with having ‘class’
    2. Never confuse wealth with a level of high self-actualization and altrustic traits.

    So that, some have a pure philanthropic purpose behind their giving, while others see it as a vehicle that offers tax incentives and then giving is the other good benefit.

  6. Thanks to all of your for your comments. Chris, that is an amazing statistic regarding the tax savings that donors are missing out on. Thanks for bringing it to my attention.

  7. Tad Druart says:

    Maggie’s comment on not confusing class with wealth is a very good one. When I was a fundraiser in the nonprofit world that played out time and time again. We should also not confuse the wealthy with the generous. The research we just released on the online behaviors and preferences of major donors shows that nearly 1/3 of the people who gave an average of nearly $11,000 annually to charity, made less than $100,000.

    I just ran across Sean’s site last week and have become hooked.