Percentages versus absolute numbers


I came across this article that said that rich people gave money to charities differently from the middle class and the poor. One difference was to whom they gave money. “The poor tend to give to religious organizations and social-service charities, while the wealthy prefer to support colleges and universities, arts organizations, and museums.”

But what interested me was another difference:

One of the most surprising, and perhaps confounding, facts of charity in America is that the people who can least afford to give are the ones who donate the greatest percentage of their income. In 2011, the wealthiest Americans—those with earnings in the top 20 percent—contributed on average 1.3 percent of their income to charity. By comparison, Americans at the base of the income pyramid—those in the bottom 20 percent—donated 3.2 percent of their income. The relative generosity of lower-income Americans is accentuated by the fact that, unlike middle-class and wealthy donors, most of them cannot take advantage of the charitable tax deduction, because they do not itemize deductions on their income-tax returns.

I can venture an explanation for this phenomenon and that is because of the difference between absolute values and percentages. It ties in with another issue that may seem puzzling, and that is why some restaurants impose a mandatory gratuity for parties above a certain size. This value is usually around 15-20% or so, not larger than what people normally should tip.

Why this is puzzling is that it is much harder to serve larger groups than smaller ones. If you have ever been to a restaurant as part of a large group you know that it takes forever for people to get their orders in because they are talking animatedly, they discuss with others what they are ordering, change their minds, and so on. Furthermore, large groups tend to linger much longer over their meals since it is a party and people don’t like to leave, and thus use up space that could go to other diners. So I could understand restaurants imposing a larger gratuity fee than usual (say 25%) for big groups. But they don’t. The fact that they ask for just the normal amount suggests that large groups tend to tip as a smaller percentage than an individual or a small group

This may be because if you are eating alone and your bill comes to (say) $20, then a 20% tip is $4 and does not seem huge and many people are willing to give that amount. But if you are entertaining a group of ten people and the bill comes to $200, then a tip of $40 may seem like a lot, and people may feel reluctant to give that, thinking that $20 is good enough, since it is five times what they would have tipped if they were eating alone

That same factor may also be at play with the charitable giving. As your income level goes up, the absolute value of the amount you give may become large enough that people become more reluctant to part with it and cut back, since the absolute amount they are willing to give seems already large to them.

Comments

  1. Pierce R. Butler says

    … The poor tend to give to religious organizations and social-service charities…

    Has anybody ever taken a hard numerical look at how much of this giving goes to genuine do-material-good-for-real-people organizations, and how much to Pat Robertsons, Benny Hinns, and other Brother Bubba’s Rodeo Church of Jesus is Lord rip-offs?

  2. invivoMark says

    It also hurts the waiter a lot more when a big group refuses to tip (for example, because the person paying is, say, a pastor*, who thinks that “giving God 10%” means that an 18% gratuity is unfair).

    I have also observed, from personal experience and anecdotes (plus I swear I saw a study somewhere), that rich people tend to tip a whole lot less. So it isn’t a surprise that poor people donate larger fractions of their income.

    *a pastor and a douchebag

  3. sc_770d159609e0f8deaa72849e3731a29d says

    it also depends on how you define giving to charity.
    In the UK a few years ago a similar survey found that poorer people gave proportionally more to charity. However, it turned out that the survey counted buying goods- clothes, books, CDs, household goods etc- from shops run by charities had been counted as giving to charity.

  4. sailor1031 says

    “….the wealthy prefer to support colleges and universities, arts organizations, and museums.”

    Yeah, well you can’t get your name on a box of groceries for the food bank. But you can get your name on that new wing at the art museum!

  5. baal says

    Rich person charitable giving is also often part of a tax strategy of some kind. Once they meet what ever threshold value of giving, they don’t give more. The tax dodger rich are probably bringing down the average for the other rich folks who are giving based on altruism (or bringing the average up since they are by nature not inclined to give).

  6. Ulysses says

    There was a time when I needed help from a charity for basic living expenses. Now that I’m financially comfortable, I donate to that charity and others like it. It’s paying back my dues.

  7. Aliasalpha says

    I suspect it’s more a matter of familiarity with needing charity. The closer you are to needing it, the more you understand it and the more likely you are to try and help as much as possible. If you’re well off enough that you don’t have to budget weeks in advance to buy a dvd and your main exposure to borderline poverty is occasionally seeing a homeless person, you’re less likely to be thinking about it as much

  8. Paul Jarc says

    If you want to know which charities would be able to make the most effective use of your contribution, then givewell.org can help. If you want to know just how inefficient the inefficient charities are, then I don’t know.

  9. jamessweet says

    I’d wager the poor spend a large percentage of their income on just about everything, except maybe “ski trips to Aspen”. If you get my meaning.

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