For nearly two decades, the percentage of U.S. households that donated to charity has declined from 66.2% in 2000 to 49.6% in 2018, according to the most recent panel study on philanthropy from Indiana University Lilly Family School of Philanthropy.
The dollar amount donated, however, increased by 17% when adjusted for inflation — and current events can still inspire donors.
To start donating to charity, think about the topics and organizations you might want to support. Select an organization that does work you are passionate about. In 2020, 28% of charitable donations went to religious organizations, 15% to education, 14% to human services, 12% to granting foundations and 10% for the benefit of public society. Consider one of these sectors as a starting point.
Next, be sure to select an organization with a solid reputation – making sure to do your research and avoid a possible scam.
Top 5 donation sites
These charity giving sites can help you find legitimate nonprofits:
- Charity Navigator: This site includes top 10 lists of charities, such as the top 10 charities to watch list, and lists of reputable charities by topic, such as protection from gun violence or charities related to the crisis in Ukraine.
- Charity Watch: This site provides a database and rating system for charities that typically spend 75% or more of their budget on programs, spend $25 or less to raise $100 in public support, and do not hold excessive assets in reserve, along with other requirements.
- Consumer Reports: Although this report hasn’t been updated since 2019, it might be a good place to start and provide some tips for checking out charities yourself. It’s always wise to do a bit of your own legwork before donating.
- BBB Wise Giving Alliance: Search by charity name to get more information about a particular organization before donating, or check the site’s alphabetical list of charities and other resources like its guide wise donations.
- Guidestar: This site includes a database of over 1.8 million charities recognized by the Internal Revenue Service.
Once you know which organization you want to support, start thinking about the size of your donation.
How to Budget for Charitable Giving
Charitable giving should be part of your daily budget as well as your long-term financial plan, according to Amy Richardson, Certified Financial Planner at Schwab Intelligent Portfolios Premium. Instead of focusing on a specific amount you’d like to donate, she suggests reviewing your spending and staying flexible.
“It’s important to think about the big picture and create a giving plan to ensure your charitable giving goals align with your overall financial picture,” Richardson wrote in an email. “Donating is a wonderful thing to do, but you want to avoid jeopardizing other important short- and long-term goals, like retirement. It’s also important to think about why you want to give and which causes are most important to you. Putting certain metrics around your giving efforts can be motivating and can help make your giving as strategic and impactful as possible.”
One way to budget for charitable giving is to break down your expenses for the year into three categories: non-discretionary, discretionary, and savings. Non-discretionary expenses include rent or mortgage payments, transportation, food, and other essentials. Savings include 401(k) contributions, saving for a child’s education, personal savings, and even paying off certain debts like paying off student loan debt.
Now that you’ve separated your personal savings from your basic needs, review your discretionary spending – it’s the leeway in your budget from which any charitable donations can be drawn.
Along with the basics of any comprehensive financial plan — like retirement planning, debt management, risk management, and estate planning — Edward Moyzes, CEO and founder of Strategic View Advisors, a subsidiary of Northwestern Mutual Private Client Group says that charitable donations can be a component of your plan too.
“Individual circumstances may require educational planning, charitable giving planning, tax planning, or special needs planning,” Moyzes wrote in an email. “Whatever your goals are, there should be a plan in place to achieve them and the plan should be adaptable to your changing circumstances.”
The exact amount families choose to donate – if they do – is highly personal, but can also be influenced by external factors.
“Previous research shows that economic factors often affect household giving,” Xiaonan Kou, associate director of research and Jonathan Bergdoll, associate director of data partnerships at Lilly Family School of Philanthropy, wrote in a statement. “For example, (gross domestic product) and stock market growth are found to be positively associated with giving. Much of the decline in the rate of household take-up of giving occurred after the Great Recession of 2008. Socio-demographics, e.g. income, education, are often linked to household giving.The general decline in interpersonal trust and empathy seen in our current society can also affect charitable giving.”
The coronavirus pandemic may have affected individual giving even more.
According to focus group interviews conducted in 2021 by Indiana University’s Lilly Family School of Philanthropy, “recent events, such as the COVID-19 pandemic and movements for racial equity and justice, spoke of an increased desire among donors to address the root causes of issues through charitable giving and to have a long-term impact on issues that matter to them,” Kou and Bergdoll say.
Once you have determined the organization you wish to support and the size of your donation, consider whether you wish to donate weekly, quarterly or annually, how you wish to accomplish the logistics of the donation and what types of tax consequences or benefits that you could incur.
“Depending on your financial situation, an advisor may suggest different charitable vehicles like a donor-advised fund (DAF), private foundation, or trust,” says Richardson. “It might also be a good idea to give through certain types of accounts, like an IRA, to maximize the amount you give and the tax deduction. Leveraging expert advice can help your money go further and increase your impact on the organization you want to support.”
Remember that charitable giving, regardless of the size of your donation, is a long-term habit worth establishing that can do good and even set a positive example for your children and others.