If you want to improve your financial situation, what should you do first? Save for your child’s college fund? Pay off credit card debt? Contribute to your retirement with an IRA or 401k? How about none of the above?
If you want to improve your financial situation, what should you do first? Save for your child’s college fund? Pay off credit card debt? Contribute to your retirement with an IRA or 401k? How about none of the above? If you want to improve your financial situation, the first thing you should do is give your money away.
Dr. Martin Luther King Jr. said, “Every man must decide whether he will walk in the creative light of altruism or the darkness of destructive selfishness. This is the judgment. Life’s persistent and most urgent question is ‘What are you doing for others?’”
For people who do not follow this extremely common practice, giving away money seems like the last thing you should do when your savings balance is low, your credit card balances are high and your retirement balance is scary. Yet millions of people throughout the world make giving the first thing they do with their paycheck. Generous charity has been a basic tenet of Christianity, Judaism, Islam, and many other faiths around the world. The money donated is no doubt put to good use, but does giving money away that could be used for other needs really benefit the giver? Absolutely.
A few years ago, the pastor at the church I attend asked the congregation to contribute to a Sub-for-Santa campaign to assist some needy families in the neighbor. One woman, who had been saving up her music lesson money to replace the worn-out carpet in her living room, felt compelled to contribute $600 to the Sub-for-Santa efforts. The new carpet would have to wait. Shortly after she donated the money the Japanese restaurant across the street from the church burned down. The law office next to the restaurant had just installed new carpet three months before. The insurance company required that the law firm remodel everything because of smoke damage, including the carpet, which was perfectly fine. Part of the carpet ended up in the woman’s living room. She joked that had she known this was going to happen, she would have donated more money so that a different Japanese restaurant next to a different law firm with nicer carpeting would burn down. As amazing as this story sounds, it is a common event that when you give something, you receive back more.
A lake is a healthy, living environment only when there is water coming in and going out. If water only comes in, the lake will become too salty and most all living things will die off. The same is true with humans. The late political scientist and Harvard professor Edward C. Banfield understood this when he wrote The Moral Basis of a Backward Society. Banfield spent two years during the 1950s in a small European village. He noticed that although the villagers had a lot of free time outside of the planting and harvesting season, they made no effort to help with the local orphanage or church. There was no individual effort to improve local schools or health care services. Unless someone was family, he or she could expect no help from a neighbor. Banfield contrasted this village with one of similar size in southern Utah. Despite a poor climate for crops and limited natural resources, this town was thriving. It had a weekly paper, the Red Cross was conducting a membership drive, a local business had contributed an encyclopedia to the school district, money was being raised to build additional dormitories for the local junior college, and a local church was collecting pennies to support a hospital 350 miles away. Banfield concluded that the American town was thriving because giving was a basic primary value. The European town remained mired in poverty because giving was unknown.
In the book Who Really Cares, economist and public policy expert Arthur C. Brooks has also identified that individual giving is the best solution to social ills. It not only benefits the recipient and the giver, but the entire nation. Charity and prosperity go hand in glove. Charitable acts strengthen social networks which stimulate economic success. Brooks cites studies that show that the benefits to the giver include financial prosperity, health and happiness. His data shows that a charitable person will earn, on average, $14,000 more per year than an uncharitable person. He found that poor people who are charitable are far more likely to escape from poverty. People who are regular blood donors are found to be happier and healthier than nondonors. Seniors who volunteer have a 40 percent lower chance of dying in a given year than those who don’t. Study after study shows the very real benefit that comes from making giving a priority.
Yes, it would be great to have thousands set aside in savings for emergencies. Yes, it would be nice to pay off debts faster. Yes, it would be nice to have college and retirement fully funded. But the smart way to achieve financial prosperity is to start by making charitable giving your number one priority. Also, if you own a Japanese restaurant, make sure your fire insurance premiums are current.