Saturday, July 23, 2011

Income and Giving

            Having more income makes people more likely to give more money to charity.  That is no surprise.  However, Professors Patricia Hughes and William Luksetich from St. Cloud State University recently found that the kind of income, and which spouse earns the income, also makes a difference.  Their study followed 2,041 continuously married couples in the Panel Study on Income Dynamics from 1994 to 2001.

            Unlike some other studies, Hughes and Luksetich went beyond comparing current year giving with current income.  Instead, they also looked at the average income in the six prior years prior.  They found that average income over the six prior years was a better predictor of giving than income in the current year.  In other words, the level of income during the current year had less effect on giving than the long-term average income did.  Couples tended to make donation decisions based on normal income levels, rather than on current year spikes or drops in income.  This suggests that donors may give a smaller share from temporary income increases, like a one-time bonus, than from permanent income increases.   

            Not only was average income important, but so was the spouse who earned the income.  Giving was much more responsive to changes in the husband’s average income than to changes in the wife’s average income.  Although giving still increased as the wife’s average income rose, it did not increase by nearly as much as when the husband’s average income rose. 

            The study also examined the effects of income volatility.  (High volatility means that the income fluctuated a lot during the six-year period.)  The effects of income volatility on charitable giving also depended on which spouse’s income was volatile.  When the wife’s income was more volatile, giving was lower.  When the husband’s income was more volatile, giving was higher.  The negative effect of the wife’s income volatility was particularly strong for religious giving. 

One possible explanation for the different results is that the wife’s income volatility may come from the wife leaving the workforce due to the birth of a child.  Because the child increases family expenses, little money may be available for charity.  The later re-entry of the wife into the workforce would also generate income volatility.  But, this re-entry may come during the life stage when much of the additional income is set aside for retirement savings.  In such a case, couples might delay giving until they are actually using the income during retirement. 

(Nonprofit and Voluntary Sector Quarterly, Vol. 37, pp. 264-280)

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