Does your generosity measure up?

Listen to this article

00:00
00:00

Is it possible to assess how charitable someone is, apart from the size of their donations? Last year Warren Buffett made the biggest donation in history but, relatively speaking, is he more or less generous than a middle-class American who volunteers in a primary school?

Over the years, studies have ranked giving in the US and, in the process, sometimes rankled states that landed on the stingy side. They have also stimulated a broader discussion over whether generosity can – or should – be measured.

The Generosity Index, published by Catalog for Philanthropy – an organisation dedicated to raising public awareness of, and respect for, philanthropy – lists the 50 US states according to residents’ charitable giving relative to their income.

George McCully, president of Catalog for Philanthropy, says the index does not measure generosity per se. “[The index] is not even an interpretation of data, all
we do is rank the numbers,” he says.

The index tabulates inc­omes and charitable giving supplied by the Internal Revenue Service. But as only 30 per cent of tax filers itemise their donations, it ignores the charitable giving of lower income families who do not itemise.

McCully does not see this as a problem. “What we are ranking is data, not people,” he says. “To make that data interesting, to stimulate discussion, which will increase charitable giving, we show which numbers are higher than others.

“The Generosity Index reveals several important lessons: one is that income does not determine giving. In fact, what qualifies charitable giving is culture. This is good news, because if you want to increase charitable giving, which is what we want to do, you don’t need to increase income, something we could not do. Instead, all you have to do is change culture. Donor education is the key to increasing charitable giving in this country.”

In November 2005, res­earchers Paul Schervish and John Havens of the Boston College Center on Wealth and Philanthropy opened a second front in the generosity debate with their report “Geography and Generosity: Boston and Beyond”. The study was commissioned, in part, because the Generosity Index received so much attention and consistently placed Massachusetts at or near the bottom of a list of states in charitable giving.

As with many aspects of life, charitable giving in modern America is politicised. For example, during the 2004 presidential election, conservative pundits offered the Generosity Index as proof that George W. Bush had a better grasp on core American values because the states that voted for him are clustered at the more generous end of the list.

“We looked at the Generosity Index and came to a conclusion that it is mathematically flawed,” said Sch­ervish, director of the Center on Wealth and Philanthropy.

Geography and Generosity includes an analysis of the Generosity Index, which is based on income tax returns, and determined that it is inaccurate in part because of a built-in bias against high-income states, such as Massachusetts, and for low-income states such as Mississippi, which has frequently come out as the most generous state in the nation on the index.

The researchers said they also identified another flaw in the methodology: the index does not take into account the significant differences in tax burdens in different states, other differences in the cost of living, or the differences in patterns in giving to secular and religious institutions and causes – all of which differentiate regions of the country as well as specific states.

Their method for calculating total charitable giving showed that states previously reported to lag behind the nation in charitable giving had higher generosity levels than those indicated in the Generosity Index. Still, the researchers reject the idea of describing their report as a study of generosity.

“All our data show is formal charitable giving,” Schervish said. “That does not include money you give to your friends, family or volunteering your time for good causes. Nor does it include some [$45bn] of remittances that foreigners in the US send home to their families every year.”

In addition to developing a new method for calculating total charitable giving in each state, Schervish and Havens created new measures of giving relative to income for each state. They measured the share of total charitable contributions donated by the residents of each state and compared it with the share of income earned by residents of the same state.

In this case, income could be calculated in terms of gross income, net of taxes, adjusted for differences in the cost of living in different states. In this way, all the residents of a state are captured the same way for each calculation, and there is no intrinsic bias against high- or low-income states.

Schervish and his team stress that any attempt to compare one state with another is at best a rough approximation.

“Look at the ‘Best places to live’ rankings, which may say that Michigan is one of the best places to live,” he says. “But if you take Detroit and Flint, it is not the best. Parts of Michigan are terrific, parts are bad, and saying Michigan as a whole is either a good place to live or bad place to live is not doing proper analysis.

“When you look at states, you will find some states with low-income groups contributing more to charity than other states. Middle-income groups and high-income groups vary state by state. Maybe looking at this state-by-state is simplistic.

“We do not want to talk about states as generous or non-generous. We do not want to characterise the quality of the culture of the people in the states, because there are so many other dimensions to that.”

NewTithing Group, a San Francisco non-profit organisation, examines the issue from a different angle. Its study, released in September, compares dollars given by people making $200,000 or more as a percentage of their total liquid assets – such as cash, stocks and bonds – not as a percentage of their annual gross income. It also makes allowances for cost-of-living differences.

Tim Stone, NewTithing’s president, says the company analysed six different years to avoid the possibilities of aberrations. The study found that the five states that are proportionately more generous in donating a percentage of their wealth were not the wealthiest states. Who came out on top? Utah ranked number one, with its residents giving about 1.6 per cent a year of their net worth. (Utah’s high score may be the result of its large population of Mormons, who are known for tithing to the Church of Jesus Christ of Latter-Day Saints.)

Oklahoma was next, followed by Nebraska, Minnesota and Georgia. The affluent in the top five donated, on average, 1.1 per cent of their investment assets.

In contrast, states such as California, New York, Florida, Texas, and Illinois – all home to many wealthy residents – were in the middle of the pack. Affluent Californians, for example, gave 0.74 per cent of their investment assets.

Stone says one of the goals of the study was to stimulate discussion and encourage the wealthy to think more about their charitable giving. “The idea is to provoke thought, show that there are different norms in different states,” he says.

“I sympathise with anyone who says, ‘Nobody should tell us we should give more.’ It’s true nobody should. We don’t think that everybody should give more, everybody should only do one thing – proactively decide on your maximum comfortable giving capacity.”

Copyright The Financial Times Limited 2017. All rights reserved. You may share using our article tools. Please don't copy articles from FT.com and redistribute by email or post to the web.