How Much Should You Give to Charity?

How much should you give to charity? 

I’ve struggled with this question ever since I started earning a paycheck. In my line of work, people often ask, “How much do others give? What’s an appropriate amount for someone in my situation?” 

I’ve never really known how to answer it. It’s a deeply personal question. I have not even determined the “right” amount for myself. 

Let’s explore the question of how much you should donate to charity. I frame it with the word “should” because that’s how people ask the question, but please keep in mind, I am not writing a prescription for how much you should give. You need to determine what is best for your life. 

Statistics About Charitable Giving

First, let’s add context around charitable giving by looking at how much is given, who is giving it, and where it is going. 

What have we learned? A sizable amount of money goes to charities each year. Most people give at least something. Religious organizations are the biggest beneficiaries of charitable giving. The average amount given to charity is about 1.5%-2% of income, though each survey or statistic has a slightly different measure of income. Some measure based on gross income, while others measure based on Adjusted Gross Income (AGI), net income, or disposable income. 

Do any of the statistics surprise you? 

Personally, I am surprised that almost 70% of the population gives to charity. I thought this figure would have been much lower. Picture it – out of every ten people I pass on the street, seven give to charity. 

I am also surprised by how much individuals give relative to foundations or corporations. In my mind, I always thought foundations or corporations would have been a larger portion of the overall pie because they receive regular news coverage discussing their policies about how they give and to whom they give. For as much coverage as they receive, I would have thought they would have made up more than 15% of total charitable giving. It’s not an insignificant amount of money at over $58 billion, but I thought it would have been higher relative to individuals. 

Through my initial research, it does not sound like many of the statistics above have changed much over time, other than the amounts have generally increased as wealth and income have increased. 

How Much Should You Give to Charity?

Now that you know some of the statistics, how much should you give to charity? 

If you want to go with the average, likely somewhere between 1.5% and 2%. Now, you may be wondering, what is your income? How do you define it? 

I am at a loss at that question. I know people who give 1% of their gross income. For example, if you make $100,000 annually, they give $1,000 per year. 

Other people define it as 1% of their Adjusted Gross Income (AGI), which is your gross income minus certain adjustments, such as retirement contributions, student loan interest, and others. If their gross income was $100,000 and they contributed $10,000 to their 401(k), their AGI would be $90,000, meaning they would donate $900 annually to charity. It’s important to note your AGI is before paying taxes. 

Then, there are other people who define it as 1% of their disposable income, which is gross income minus taxes. For example, if their gross income was $100,000 and their FICA taxes were about $7,650 and federal taxes were about $15,100, their disposable income would be about $77,250. This would mean contributing about $772.50 to charity annually. 

Basing your charitable giving off your gross income is more generous than your adjusted gross income and disposable income. Generally, basing your charitable contributions on your adjusted gross income will result in a larger contribution than disposable income. 

Is one more right than the other? No, choose the method that works best for you. 

I can see the logic in all three methods. With gross income, it’s easy to calculate and results in the highest contributions. I like simple.

Adjusted gross income allows you to take care of some of your obligations, such as retirement. I can see why people would want to secure their future before feeling like they have the ability to donate to others. 

Disposable income also makes sense. For those folks, they want to give what they have left after paying their taxes. 

If you decide to give, pick a percentage that you feel works best for you. 

Give to Charity Above Averages

If you want to be above the 2% average, you could adopt a larger percentage. Some religions recommend around 10% of income. For example, many Christians and Mormons are asked to give 10% of their income to charity. 

It’s no surprise then that Utah and many other parts of the US that have larger proportions of religious people give more money to charity. For example, Utah residents gave 6.6% of their AGI to charitable organizations in 2012.  

If 10% feels like too much, you could also go somewhere in between with 4-5% of your income. Again, there is no perfect amount. Every little bit helps. 

If you are not keen on donating a percentage of your regular income to charity, another option is using more of your bonuses to contribute to charity, as hopefully you are less reliant on them for everyday living expenses. 

Give to Charity Based on Wealth

In recent years, people have called for a wealth tax. I’m not here to debate the merits of it, but it does present another way to calculate your charitable giving. You could choose to donate a certain percentage of your wealth every year. 

For example, if you are retired or have inherited wealth, your income could be very low. If you had $3,000,000 in a brokerage account and no other income, your income might be less than $50,000 per year, which if you followed the 2% average of donating to charity, would mean donating $1,000 each year. That is 0.03% of your overall wealth. 

Meanwhile, someone with no assets earning $100,000 per year would be donating $2,000 per year to charity. 

I’m not saying one is right and one is wrong. I’m presenting options to look at it differently because there are ways to create artificially low income, which results in lower donations to charity if you base it solely on income.

You could even do a hybrid based on your income and wealth. 

There is no perfect system, but given that some wealth translates to low income, it is worthwhile exploring a system for giving based on other factors.

How Much Have I Given to Charity?

As I reflect on my own charitable giving, it’s been haphazard, much like others. I wrote a giving plan outlining my strategy in 2018, but failed to follow it. I had intended to give 2% of my net income each year to charity. I chose net income because I took an approach where I wanted to take care of myself first by saving for retirement and paying taxes. 

I outlined what types of charities would receive funds and the percentages. I did not follow it, but it was a good exercise and certainly has impacted my giving, even if I have not strictly followed it. 

How did I do? What percentage did I give to charity? 

Below is what I gave to charity each year as a percentage of my AGI:

  • 2017: 3.87%
  • 2018: 2.43%
  • 2019: 0.10%
  • 2020: 0.07%

I don’t have data going back further because I did not itemize deductions prior to 2017, and I have not kept good records for the first few years of my career about what I gave to charity. If I had to guess, it ranged between 0% and 1%. 

I had not looked at the percentages prior to this point. I am disappointed I have not kept up my giving in the last few years. I’m embarrassed by those percentages. They could certainly be higher.

In 2019, I bought a townhome, which increased my lifestyle expenses. I imagine that has partly to do with why I am not giving as much. Also, I was involved in a few charitable organizations in 2017 and 2018 that encouraged making large, meaningful gifts. That is a big part of the reason those percentages are higher. 

I also gave larger donations to a Donor-Advised fund in 2018 and made grants to charity from it in 2019 and 2020. I depleted most of it, though, in hindsight, I should have replenished it. 

I would like to be giving at least 1% of my income to charity each year, if not more. This means I have some work to do. 

Summary – Final Thoughts

Charitable giving can be a contentious issue. On one end of the spectrum, some people do not believe in contributing to charity. On the other end, some people call for donating close to all of your income and wealth to charity. 

I’m not on either end of that spectrum. I’d like to be around the average of 1.5% to 2% of income. Although I’d like to give more, I am torn because I am still early in my career trying to build wealth. I’d like the financial freedom to choose how and when I work earlier than the typical retirement age. That requires saving a higher percentage of my income, which by default means less money to other categories, charity being one of them. 

I’m not sure I’ll ever be content with the amount I am giving to charity because I think it will always feel like more can be done. Perhaps that is good to recognize and be okay with it for now. 

Although we have talked about donations to charity purely in a monetary sense, there are other types of donations. You can donate goods, services, and time to charitable organizations. Those are fantastic donations, too. I wanted to focus on the question of how much to give to charity because that’s what many people are asking. Many people are not asking, “how much of my time should I donate to charity?” Although when I say it out loud, it’s a question worth pondering another day. 

Disclaimer: This article is for general information and educational purposes only and should not be considered investment, financial, legal, or tax advice. It is not a recommendation for purchase or sale of any security or investment advisory services. Please consult your own legal, financial, and other professionals to determine what may be appropriate for you. Opinions expressed are as of the date of publication, and such opinions are subject to change. Click for Full Disclaimer