With Donations, How Charitable Is Charitable?

Ask a financial planner how much you should give to charity and get ready for a shocker.

“The rule of thumb is 5% to 10%” of your income, said Eleanor Baker, a tax planner and principal at Baker Newman & Noyes in Portland, Maine.

If that seems like an awful lot, that’s because Americans overall gave just 1.9% of their income to charity last year, according to Giving USA, the authoritative annual report on philanthropy by the American Assn. of Fund-Raising Counsel in New York. That level, which includes the value of donated goods or gifts in kind, has remained relatively unchanged over the last 20 years and has never exceeded 2% since at least 1975.

Only one out of 10 Americans donated more than 5% of their income last year, according to a study by Boston College’s Social Welfare Research Institute.

This is the season for charities to blitz Americans with direct-mail and telephone pleas for cash. They all want more, more, more. Very few charities, however, say how much people should give away overall. And rare is the financial planner who raises the issue with clients--even though there seems to be a consensus among the profession and the charitable groups that donating less than 5% of one’s income is considered stingy.

Paul Konigsberg, a New York financial planner and tax strategist, said he would counsel his clients to give at least 5% of their income to charities, if they asked. “Not that anyone has asked,” he added.

Even the Roman Catholic Church, known in centuries past for its tithe, or tax of 10%, doesn’t specify minimum giving guidelines for its members these days.

“We leave it up to the conscience of the giver,” said Joseph Zwilling, director of communications for the Archdiocese of New York. Some parishes take it upon themselves to tell members they should give 5% of their income to the church and another 5% for personal causes, he said. But such a modified tithe is only “a goal,” he said.

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Independent Sector, a Washington-based group representing 800 charities, began a program, “Give 5,” almost a decade ago to urge people to give 5% of their income and five hours a week in volunteer work to charitable causes. “People didn’t know what was expected of them,” said John Thomas, vice president for communications. “We never intended it to be a standard that someone can feel guilty about if they don’t reach.”

There is no shortage of outstretched hands. According to the National Charities Information Bureau in New York, there are about 500,000 charitable organizations in the U.S. and their numbers are growing at a rate of 30,000 a year.

The number of charity solicitations increases around Thanksgiving because charities know most people make their donations in the last two months of the year, said Dan Langin, director of communications for the NCIB. “Americans just don’t give until November and December,” he said.

Several factors come together toward the end of the year to prompt people to open their hearts and wallets, Langin said. The holidays put many people in the mood for giving. And many people who are having a good year themselves are moved by stories about others going hungry or cold. Guilt sets in.

For some people, November and December are when they finally have a handle on their own income for the year and feel more confident that they won’t become charity cases themselves.

And then, of course, year-end charitable contributions can reduce an individual’s tax bill in April.

Last year, gifts by corporations, organizations and individuals spiked upward to $143.9 billion, an 11% increase from 1994, according to the Giving USA report. An improving economy, gains in the market and rising incomes spurred the increase in funding for charities, the report said.

The NCIB’s Langin points out that Americans donate more as a percentage of income than do people in any other country. However, comparisons of nation-by-nation giving are unreliable, said Ann Kaplan, editor of the Giving USA report. Because of tax-filing requirements, Americans may just be better at keeping records of what they give. And taxes are higher in many other countries, so taxpayers may feel they support the poor through the government.

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Tips on Donating

About a third of all charitable donations are made during the holiday season. Daniel Borochoff, president of the American Institute of Philanthropy, offers these tips for effective giving:

1. Research your charity. “Never give to a charity you know nothing about,” Borochoff says. “Request written literature and a copy of the charity’s latest annual report.”

2. Find out where your money goes. Borochoff suggests asking how much of your donation goes for general administrative costs and fund-raising expenses and how much is left for the program services you want to support. The AIP recommends that at least 60% should go to program services, and less than 40% should be spent on raising funds.

3. Do not respond to pressure. “No legitimate organization will pressure you to give immediately,” Borochoff says.

4. Keep records of your donations. The AIP recommends giving only through a check or money order. Borochoff warns against giving out your credit card number.

5. Remember that “tax-exempt” does not always mean “tax-deductible.” Tax-exempt means the organization does not have to pay taxes. Tax-deductible means you can deduct contributions to the charity on your federal tax return.

6. Don’t be misled by a charity’s name. Some questionable charities use a name that closely resembles the name of a respected, legitimate organization.

7. Do not be enticed by emotional appeals. Question phone solicitors or direct-mail appeals that tell you nothing of the charity or of how the money will be spent.

8. Ask if the charity is registered with federal, state and/or local authorities.

9. Beware of charities offering gifts. Free greeting cards, calendars, address stickers and other gifts in direct-mail solicitations often mean high fund-raising costs.

10. Give. “Once you are satisfied that the charity is worthwhile, give generously if you can,” Borochoff says.

To receive a copy of the “AIP Charity Rating Guide and Watchdog Report,” send $3 to AIP, 4579 Laclede Ave., Suite 136, St. Louis, MO 63108.