Misconceptions about Charitable Giving
In our work as financial advisors, we’ve found that charitable giving is greatly underutilized in our clients’ portfolios. Done correctly, charitable giving can be a very powerful financial tool. Here are the common misconceptions about charitable giving.
If you subscribe to any of the following myths, please kindly consider these perspectives.
Myth #1: It’s only for the people who have “extra money” to spare.
The biggest thing we’ve seen holding people back from giving more to charity is the idea that they can’t afford it unless they have extra cash on hand. This is a classic case of the chicken and the egg.
Our motto is that financial advice can help anyone, regardless of where you are in life. Even though you may not be feeling that you’re at the height of your wealth, charitable giving may be worth looking into.
Everyone’s tax situation is different – and this is by no means any kind of tax or financial advice – but generally charitable giving reduces your taxable income, thereby lowering the total tax liability. Charitable giving won’t directly generate dollars out of thin air, but cause “addition by subtraction” by reducing the amount of money that goes out the door.
Wouldn’t you rather see your dollars go to a worthy cause rather than the IRS?
Myth #2: To give you have to give up something and get nothing back.
Giving something is 100% a sacrifice without any benefits to the giver, right?
Besides the tax benefit (we already covered that) and the euphoria and good karma that giving creates (and we’ll go into that more later), there are certain charitable strategies that will create an income stream from the gifted assets. Some people use this to fund their retirement.
Other charitable strategies allow you to gift a position with large gains and avoid the tax consequences that you would have had to bear by selling.
We’re not trying to get overly technical, but our point here is that it is possible to use charitable giving strategies to give and receive at the same time.
Myth #3: The benefits of the act of giving are limited only to the act itself.
The effects of giving can extend far beyond the reach of the immediate act itself.
For example, giving can have a positive influence on the family of the giver. Many affluent families are confronted by the fear of having their children grow up with an “entitled” attitude. Charitable giving can be a solution to this problem.
By giving together, children may gain a sense of humility and empathy for other people. It also can give them a vision of the realities of life that they may be fortunate enough to have been sheltered from.
When parents serve as a model of giving they instill the beauty of compassion in their children. This reaches far deeper than the act of giving itself and can have a lasting effect on generations to come.
Myth #4: Not everyone needs to be given to.
Everybody may need to be given to at some time in their lives.
Many of the world’s problems result not from the fact that there is a scarcity of resources, but rather that resources are not deployed in an equitable fashion. At one point in our lives we all need to be given to. These gifts are not always monetary – some are non-monetary.
Take for example, Hurricane Harvey in Houston in 2017. Civilians came from neighboring cities and states with their boats to rescue people who were perfect strangers from flood zones. People donated their extra, unused clothing, furniture, food, etc. None of these came out of pocket. It’s a great example of non-monetary gifts that can make such a critical difference.
You can never predict when you’ll need to be given to. And as much as we’d like to believe we can, there are some forces that are beyond our control.
So now that we’ve established that the need to be given to is universal, it only makes sense to conclude that you can never give enough. There can never be enough giving in the world.
Be a Giver.
If you have any questions about how to integrate a charitable giving strategy into your financial life – no matter where you are in life – email firstname.lastname@example.org.