The Curmudgeon’s Guide to Giving Tuesday

There is a quickly spreading effort to dub tomorrow “Giving Tuesday” in the United States. The idea is to create a start to “giving season,” just as there is a start to the Christmas shopping season—Black Friday. Proponents such as Matthew Bishop and a variety of charities are encouraging people to use social and other forms of media to broadcast their giving, make a giving pledge (a miniature version of the Buffet/Gates Giving Pledge), and to encourage others to give as well. By making giving public in a way that it hasn’t been before (what would Maimonides think!), proponents of Giving Tuesday hope to boost giving season in the same way that retailers boost consumer spending via shopping events.

I don’t think it will work. That’s not to say that I don’t think the idea will catch on. I think we’ll see a huge number of tweets and Instagrams on Giving Tuesday. And I expect that the effort will grow each year. What I don’t think it will do is materially affect giving in any positive way.

The United States has a deserved reputation for generosity when it comes to charity. According to GivingUSA, total annual giving now tops $300 billion. What many don’t realize, given that the GivingUSA numbers change each year (usually in a positive direction), is how static the giving behavior of Americans is. Americans on average give about 2 percent of their income. When they earn more, they give more. When they earn less, they cut back. Over the last 10 years the percentage of national income given away (according to GivingUSA’s totals) has varied from 2.1 to 2.2 percent. The only thing that has changed that percentage in the last 40 years, according to the Minneapolis Fed, is a tax law change that led to many wealthy people starting foundations at the end of 1986.

I haven’t yet heard anyone propose a plausible reason why Giving Tuesday will affect how much Americans give. Mental accounting—as economists refer to our maintenance of ledgers of spending in our heads—is a surprisingly powerful force. While we don’t have a lot of evidence on how this works, there have been a few experiments that demonstrate this. Aradhna Krishna at the Ross School of Business at the University of Michigan has demonstrated that when people buy items that include a gift to charity (known as “embedded giving”) they give less elsewhere. (Nina Mazar and Chen-Bo Zheng have shown a similar effect when it comes to “green” products). When natural disasters encourage an outpouring of giving, there is no discernible effect on giving overall; people just shift their giving from one cause or charity to another (for instance, giving after September 11, 2011, totaled less than one percent of total giving for the year).

So while Giving Tuesday may make Americans’ giving more visible, there’s no reason to believe that it will affect how much they give. What it could do is shift more giving to the week of Thanksgiving from other times of year. Giving season is as important to charities as Christmas shopping is to retailers. The apocryphal story behind the name of the day is that it was the day that the standard retailer went “into the black” or became profitable on a yearly basis. That’s obviously overstating it, but for many retailers the Christmas season accounts for 30 percent or more of their annual revenue. It’s not uncommon for charities to take in 40 or 50 percent of their annual donations during the month of December.

The reason for this rush of giving at the end of the year in the United States is that gifts must be made by December 31st to qualify for a tax deduction (even though many of them, according to tax preparers I’ve spoken with, have no idea that they don’t give enough to actually get a deduction for their giving). Insofar as that shift is from giving during the last week of December, that’s probably a positive—at least for the bookkeepers at charities, some of whom may finally be able to take the week between Christmas and New Year’s off. But it does no good to the charities themselves. The concentration of giving during giving season is a huge problem for managers of nonprofits. Fundraisers spend a large portion of their effort trying to shift giving away from giving season. It is very difficult to make sound strategies when 50 percent of annual income (as is the case for many charities) arrives in the last month of the year. But Giving Tuesday may exacerbate this problem. People may not just shift their end-of-year giving to this week, but they may also shift their giving from other parts of the year.

Worse, the public display of giving may actually decrease people’s happiness and enjoyment from giving. That’s another one of the findings of Krishna’s study above—and from a large body of psychological work on altruism going all the back to Maimonides again. That would be bad for all of us in the long run.

That’s why I’m wary of Giving Tuesday. If there is a theory as to why and how it will boost giving, I’d love to hear it. And if there are nonprofit executives who think that shifting giving to late November from late December will help them, I’d love to hear that too. In the meantime, I’ll be a curmudgeon on Giving Tuesday.

Read more stories by Timothy Ogden.