It’s the end of the year, and December is the season for giving. The holiday season inspires many to give to charity through a variety of organizations and causes. Because the deadline for receiving a tax deduction for charitable giving is December 31st, many people are also motivated to give at the end of the year to optimize their taxes.
Of course, the new tax bill will reduce the number of taxpayers who itemize their deductions because the standard deduction will be doubled. Charitable donations are an itemized deduction, so many people are motivated especially in 2017 to donate as much as they can to maximize the tax benefits of their charitable contribution.
Switching From a Saving to a Spending (Giving?) Mindset
In a past Forum Mailbag, a reader asked how they can shift their mindset from saving to spending.
Some people have saved their entire lives, and this mentality has become so ingrained into their psyche that even though they have more than “enough” and can afford to spend more, they are unable to do so.
While leaving money to their children and grandchildren is an option, some don’t want to do that for fear of spoiling them and blunting the work ethic and ambition of their heirs.
I’ve suggested that if someone is unwilling to spend their money or leave the money to their grandchildren, then perhaps they should donate money to charity and help others. While charitable donations might seem like a purely altruistic act, recent data shows that spending money on others may actually increase happiness.
We’ve become wealthier, but not happier
The study comes from the journal Science by Elizabeth Dunn and colleagues from the University of British Columbia and Harvard. In their literature review, they note that while material wealth has grown over the past few decades, happiness has stayed relatively flat.
They attribute this phenomenon to people spending their additional wealth on consumer goods for themselves, which doesn’t significantly increase their happiness. On the other hand, previous studies have found that spending money on others or charitable causes better increases happiness levels.
Dividing spending into personal and prosocial spending
In a preliminary study, the authors surveyed 632 Americans to rate their happiness, as well as outline their budgets. The respondents were asked to divide their spending into bills, expenses, and personal gifts (termed personal spending) versus gifts for others and charitable donations (prosocial spending). On regression analysis, they found that personal spending had no correlation with happiness, while prosocial spending had a slight positive correlation with happiness.
How would you spend a holiday bonus?
Based on this preliminary data, they then conducted an experiment where 16 employees were given a bonus by their company. They found that those who spent more of their bonus on prosocial spending got a greater boost in happiness than those who spent it on personal spending.
Even forced giving makes people happier
For their final experiment, they had participants rate their baseline happiness on the morning of the experiment. The authors then gave each person $5 or $20 to spend by the end of the day. Participants were randomized to either spend it on themselves or on others. They found that those who spent money on others derived a greater happiness boost than those who were instructed to spend it on themselves.
Spend Money On Others
For the person in our Forum Mailbag post who can’t spend their money, this study suggests that he might consider spending his money on others if he can’t spend it on himself. He clearly has maximized his happiness with his current possessions, so why not give to others — it might improve the well-being of the donor as well as the recipient.
It doesn’t take much to increase happiness
What’s interesting is that the authors were able to induce a detectable increase in happiness with just $5 or $20. It doesn’t take a large gift to improve your happiness. As with other gifts in life, perhaps it really is the thought that counts.
This conclusion shouldn’t come as a complete surprise
It shouldn’t be a complete surprise that donating money to others makes you happier. After all, we all feel good when we support a cause that we care about. If giving money to others didn’t make you happier, why would you do it?
Research shows that spending money on others increases happiness more than spending money on yourself. The benefits can be derived for as little as $5 or $20.
So before we ring in the New Year, take a $20 out of your pocket and donate it to a cause that you care about. It just might bring you some holiday cheer.
What do you think of the study? Have you made any charitable donations this year? Do you think the act of giving improves your happiness and well-being?