Giving Freely or Freely Giving

It is the time of year that we begin to be increasingly asked for charitable donations.  From the friendly volunteers ringing bells for the Salvation Army to this year’s packet of “free” return address stickers with the accompanying request for a donation, we are often inundated with requests to share our income and wealth.  And share our income and wealth is what American do.  According to Giving USA 2009, Americans donated an estimated $307.65 billion in 2008.  Although the recession is credited with this 2% decline (current dollars) in giving over 2007, it still represents charitable giving of about $1,000 per person in the United States.

 

Having said that, two-thirds of public charities saw decreases in funding in 2008, compared to 2007; while 54% of human service agencies experienced an increase in demand for their services.  The result is that 60% of human service agencies are cutting expenses, through services or staff.  Unfortunately, those most likely to report a downturn in their funding are those serving children and youth and those working to provide families’ basic needs (food, shelter, clothing, etc.) with more than half (53%) reporting a funding shortfall.  (Giving USA is a publication of Giving USA Foundation^TM, researched by the Center on Philanthropy at Indiana University.)

 

How do you decide to whom to give and how much?  Is this an individual decision, a family decision, or one driven by self-interest or habit?  Do you check to see if the charity is a Better Business Bureau Accredited Business?  Do you even know where you give your money?

 

Over the past five-years, while I’ve been my father’s custodian, I was amazed at the phone calls and letters I received asking for his donation for the year. We know that some charities focus their efforts on the elderly, while others focus solely on their members, as do churches. Yet, we need to budget charitable giving like any other expenditure.  While some households make an annual gift to United Way, allowing their local board to make allocation decisions, others find themselves sending a token check to every solicitation that contains their favorite or most dreaded word, such as “Veteran”, “Cancer”, “Ducks”, “Disabled”, “Nature”, “Children”, “Refugee”, or whatever.  My guess is that those in the latter category have little idea about how much they give and how the money is being spent.  This conclusion is even more likely to be true, if they don’t itemize deductions on their taxes – which is likely if they don’t have a mortgage on their residence.

 

Several years ago, I did a presentation on “Living Better on Less” in a farming community that had been hard hit by, then, low commodity prices.  In the question period, a dapper, older gentleman stood up and said, “I’m doing better than most of the people in this room.  Each time I received a paycheck, I, first, gave some money to God and then I gave some money to me.  I saved it.  Now, when the chips are down, I’m doing alright.”  Since then, his advice has echoed in most every lecture I’ve given on budgeting.  While I do not care if God is first on your list, I do care that you are no lower than second on your list.  (It is, however, your list.)  In order to make this happen, you must include charitable giving as a budget category and make some hard decisions.  Today, with solicitations increasing to address the shortages in budgets, this need for you to act on behalf of your budget is even greater.

 

Given that we live in a free country, I’m not going to tell you where to give your money.  I can, however, tell you where others give their money.  If we take total charitable giving and divide it into each recipient category’s share of total charitable giving, it looks like the following.  I’ve included the dollars given in charitable giving to each category of recipient, the percentage of total charitable giving to that category, and the percentage change in charitable giving to that recipient between 2007 and 2008.

 

Category	$ Charitable Giving	% Total Charitable Giving	% Change 2007 to 2008
Religion	$106.89 billion	35%	+5.5%
Education	$40.94 billion	13%	-5.5%
Foundations	$32.65 billion	11%	-19.2%
Health	$21.64 billion	7%	-6.5%
Public-Society Benefit	$23.88 billion	8%	+5.4%
Arts/Culture/Humanities	$12.79 billion	4%	-6.4%
International Affairs	$13.30 billion	4%	+0.6%
Environment/Animal	$6.58 billion	2%	-5.5%
Other	$48.98 billion	16%	na

 

In the above table, for a recessionary year with declines in overall income, charitable giving increased in some categories, while it decreased in others.  (Real median household income in the United States fell 3.6 percent between 2007 and 2008, from $52,163 to $50,303.  – U.S. Census Bureau) The “expenditures” (charitable giving is an expenditure) that increase when income increases are called normal goods. When expenditures increase when income declines, the good is called an inferior good.  When expenditures increase by a greater percentage than income increases, the good is called a luxury good. (I am not claiming that any category is superior to any other, I am merely pointing out the facts and teaching some language of economics.  Those that have increased would be in the category of inferior goods; those that have decreased by less than the rate of income decrease are normal goods; while giving to a foundation was a luxury good expenditure.  It is also the case that some of these categories are deeply bound by habit, tradition, or group membership that precludes any changes in level of giving. )  Research, also, indicates that those with the highest incomes give a lower percentage of their total income to charities, than do those with the lowest incomes.

 

While this Tip did little to help you with your finances, it might help you make some decisions.  In exchange, these decisions could make you happier with your finances and have more money for items you need and, perhaps, want.  If they do, we reach our goal of you reaching financial success – as you define it.  Regardless, I am not suggesting you stop giving.  I am suggesting you make decisions to ensure that your dollars express your values, in support of your goals for our “grants economy”.  (The phrase “grants economy” was first used by economist Kenneth Boulding (1910-1993).)

 

Robert O. Weagley, Ph.D., CFP^(r)

Chair

Personal Financial Planning

241 Stanley Hall

University of Missouri

Columbia, MO  65211

 

Salus populi suprema lex esto. 

- Motto of the State of Missouri

 

As Promised

You may have received a credit card statement indicating that your minimum payment has increased, although your balance has not.  If so, you are not alone.  As the new rules being imposed on credit card companies appear on the company’s planning horizon, the companies are reacting by making changes to the contracts they have with existing customers.  Why?  They want to remove customers that do not add to their profits, by making credit terms more difficult, prior to the changes which take effect on February 22, 2010.

 

What are the most significant benefits for consumers that are intended in the Credit Card Accountability, Responsibility and Disclosure Act?

·         Rate increases cannot be applied to exiting balances.  If you are 60-days delinquent (technically in default) they can raise the debiting rate.  They must, however, restore the older rate on the prior existing balances, after you’ve been current for six months.

·         You must be given advance notice of an increase in your interest rate, at least 45 days prior to the rate increase.  The new law does not cap interest rates.

·         Issuers cannot charge overlimit fees more than once per billing cycle and you must have approved the lender to allow charges over the limit.  That is, you will not be allowed to charge over your limit, unless you’ve agreed to a fee once per billing cycle

·         If you are under that age of 21, without proof of income independence or a cosigner over the age of 21, you cannot receive a credit card.  (Do not borrow from pawnshops or payday lenders, if you cannot be approved for a credit card!  Also, do not cosign for your younger friends.)

·         No more double-cycle billing, where finance charges were levied against both the current and previous balance.  The prior practice allowed lenders to charge interest on the amount that was repaid, in addition to what is still owed.

·         You now have a minimum of 21 days to before a payment is due, in contrast to the current practice of 14 days.

·         If you make a payment that exceeds the interest owed for the month and you have balances owed under several different interest rates, the excess must be first applied to the balances with the greatest APR.

 

To counteract these changes, besides an increase in your minimum payment, what other changes in your credit relationship should you look for? 

·         Higher interest rates (APR) being used to debit your account.

·         Fixed interest rates being changed to variable interest rates.

·         New or higher fees.

·         A reduction in frills (I mean “benefits”) that have little to do with your credit; like bonuses, rebates and new offers.

 

Some complain that these changes, particularly the increase in your minimum payment, are unfair and state the consumer would be better off saving the money (DUH!) or spending the money that is going to the credit card companies to stimulate our lagging economy (think ME FIRST!).  On the other hand, the industry has been losing money in the midst of the current recession as borrowers have lost the ability to repay, following job losses or slowdowns.  For example, Bank of America’s credit card defaults accelerated sharply to $9.6 billion, from $4.4 billion a year ago, as defaults rose. Moreover, Bank of America added $2.1 billion to its reserves for bad debts, between July through September, in the event that rising unemployment increases the bank’s losses.  Yet, for those that are current but deemed to be risky, the changes can be onerous.  What should you do?

·         Ask for an explanation.  You must always be proactive to try to understand any changes and, in the process, you might find that the person at the credit card company might be empowered to overrule the change – for “credit-dissidents”.

·         If they don’t offer to make the change, fight for it.  You can fight with more success if you are a good borrower - you don’t have a history of late payments, charging more than your credit limit, or use the charge card often (they make money each time you use the card through merchant fees). 

·         Help them get to know you.  You may be in very secure industry and not likely to lose your job.  If there has been a positive change in your income make sure they have that information.

·         Think about what you want before you call.  You cannot successfully negotiate, if you don’t know what you want and why you deserve to get it.  What is most important to you, a lower minimum payment (you must be a new reader of the Tip) or a higher credit balance to provide you access to fund to support your business or other productive venture?

·         Never be afraid to ask for the person’s boss.  Sometime that tactic can move a consumer affairs employee to take action or, perhaps, the “higher-up” will be able to make a deal and be willing to do so quickly, as they’ve other more pressing issues than you.

 

As I indicated last week, consumer credit use is down from last year and many card holders have closed their accounts or paid off their balance.  Truly the banks are in financial difficulty – mostly their fault – and consumers are in difficulty – mostly their fault if they have over borrowed for unnecessary purchases and not their fault, if they have been caught in the backdraft of the current economic inferno.  Taken together, we’re all in a difficult situation, where we are working hard to restore the financial success of our economy.  This week, Warren Buffett’s company, Berkshire Hathaway purchased the remaining 78% of Burlington Northern Railroad that Berkshire did not already own.  When explaining his $34 billion dollar investment, Mr. Buffett, consider by many to be the world’s leading investor, replied, “Berkshire's $34 billion investment in BNSF is a huge bet on that company, CEO Matt Rose and his team, and the railroad industry.  Most important of all, however, it's an all-in wager on the economic future of the United States. I love these bets."  What else can we do, but agree?