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Personal Finance FAQ

DON’T Put Your Charitable Giving on Autopay

Charity recycling
No autopay for you!

“Too many have dispensed with generosity in order to practice charity.”
–Albert Camus

I was in Los Angeles for an internship between my sophomore and junior years of college. Yes, even at West Point, we got to do civilian summer internships, and mine was at the old Hughes Aircraft, helping (supposedly) to program the base set of mathematical functions that would go on the F-XX fighter jet’s radar. I’m not trying to be sneaky. I just don’t remember which F series fighter it was. Yes, me, an Army guy, building stuff for the Air Force. I enjoyed the irony.

The other two guys with whom I was doing the internship and I went out on the weekends. We had one car between us, so we went out together. One night, we went to some fast food restaurant to grab fourth meal. No, it wasn’t Taco Bell. We were eating fourth meal long before it became cool.

There was an old homeless man sitting in front of the window of the restaurant. He didn’t have a sign and he wasn’t actively soliciting. He just looked rough. He’d clearly seen better days, and he didn’t appear to have much to look forward to. If you’re sitting in front of a fast food restaurant’s window, awake, at 2 AM on a Saturday morning, you don’t have much farther down to go.

For some unknown reason, this man’s plight struck me more than usual. I’m not the type who throws coins into beggars’ cups and the like, but this guy seemed different, for causes I’ll never know. I decided to buy him some food. I bought a burger and the other guys pitched in with fries and a shake, and we took the food outside to give to him. He was gracious and grateful without gushing; there’d probably once been a speck of pride and self-respect in the man, as he managed to convey deep gratitude without gushing.

I felt better. I couldn’t do that every time, but clearly, the other two guys and I had made that man’s life a little better for a little while.

The event also impacted me, since I still remember it pretty clearly 20 years later.

A study by Harvard Business School’s Michael Norton and others looked at the reasons and the benefits for giving to others, particularly when, if examined from a self-serving, rational point of view, we really have no reason to help strangers. Sometimes, signaling is a reason that we give – we want to show others that we care or that we’re wealthy enough to be able to give money away and not notice it. The notion of giving away money to feel wealthier is one that I examined in my guest post on Jean Chatzky’s website.

The bigger cause for people to give, though, is a simpler one.

Giving makes you happy.

When Norton’s team examined the science of giving, they discovered that the ventral striatum fired up when we give to others in ways that we view as helping them. The ventral striatum is the same area of the brain which lights up when we see art or attractive faces, or even attractive faces in art. Monkey Brain likes getting massaged there, so he is happy, which makes you happy. Giving has been shown to reduce anxiety and depression, and improve health through reducing stress hormones (bad cortisone!). Lowering the stress hormones, incidentally, will help you shed unwanted pounds. I’m not going to go so far as claiming that giving to charity will help you reduce weight, but it’s also not an unfathomable leap in logic.

The hedonic value of giving – in other words, the happiness you create through giving – is highest when you give in person. When we spend money on others, we’re happier because we create an empathetic bond, no matter how brief, between ourselves and the recipient of our charity.

Whether it’s for civic, hedonic, or religious reasons, we are generally inclined to give. Therefore, it’s easy to make the leap, particularly given other financial advice I provide on the website, to the conclusion that you should just automate your charitable contributions like every other bill that you pay. Set up your automatic deposits into your IRA and 401k, put the bills on autopay, and have your bill pay set up an automated payment to the charity or charities of your choice every month, and you’re good to go, right?

If you went that route, you’d be doing a great thing. You’d be giving to a charity and increasing the well-being of others. However, if you’re going to be giving anyway, why not increase your happiness along the way? If you put charitable giving on auto-pay, then you’re not going to get the happiness that’s associated with the giving because Monkey Brain won’t actually see you giving the money away. For the same reason that you want to hide all of the other activities from Monkey Brain – because you don’t want him to see you setting aside money for investing and for your irregular expenses, because otherwise, he’d want to spend it and he’ll throw a temper tantrum – you don’t want to hide your charitable contributions.

Monkey see, monkey appreciate.

In order to gain happiness, a sense of well-being, and all of the other physiological benefits that you receive from giving, you need to engage in the act itself. While the act of giving in person gives the most benefits, even the simple act of writing out a check and putting it in the mail allows you the opportunity to contemplate what you’re doing and to envision the recipients of the charitable contributions. This will increase your happiness.

It’s one of the rare instances where both you and Monkey Brain can both have your cake and eat it and you’ll both be satisfied.

If you’re like me, you may have your entire financial life automated. If this is the case, you want to make sure that you’re not missing out on your charitable contributions, so there’s a simple solution.

Set a calendar reminder. Make it repeat once a month (or as often as you make contributions). Then, write a check or send out the payment online. Or, if you can, actually go make an in-person contribution. Regardless of what you do, as long as you are actually engaged in the charitable activity, you’ll get the benefits.

By

Jason Hull, CFP®, was the co-founder of Broadtree Partners, a firm that acquires $1-5MM EBITDA companies. He also was the co-founder of open source search consultancy OpenSource Connections, a premier Solr and ElasticSearch firm. He and his wife FIREd (financial independence retire early) at 46 and 45, respectively. He has a BS from the United States Military Academy at West Point and a MBA from the University of Virginia Darden Graduate School of Business.

You can read more about him in the About Page.

10 replies on “DON’T Put Your Charitable Giving on Autopay”

This is good advice. I tell folks every now and then that giving money away in cash is also more effective for your own feelings than writing a check or paying online.

I’m curious what you think of giving to a church or other establishment using auto-pay? Personally, I would rather see the entire year-end amount than take a chance of missing a month, when I budget to give that money away every month anyway. For me, it’s one less thing I have to worry about each month, so it’s nice. But I don’t “feel” the giving effect quite as much as I used to.

Hey! Thanks for joining in the discussion!

No auto pay for churches or religious institutions. Yes, giving cash is even more impactful, but regardless of whether or not you write a check, I’d take the annual goal, divide by 52, and put that amount in the tithe plate every week. I mentally lump churches and religious establishments as charities for both the purposes of the charitable giving mental benefits and for budgeting purposes. If your goal is, for example, to donate 15% of your income to charity, then, to me, it’s perfectly acceptable to include your 10% tithe and then give 5% to whomever else you deem worthy (or to the special donations the church occasionally asks for).

I personally give back to the church I grew up with in my hometown, and I manually initiate a bill pay each month. It’s not as good as giving in person, but since the church is four states away, that’s not practical either. I do try to reflect some before having my bank cut the check.

My church doesn’t have auto pay set up, so I write a check every time I get paid or my hubby gets paid. I personally would like to autopay it though. For a child that I’m sponsoring through Compassions international, it is set up to autopay, but they also send you letters and reminders for kids birthday and etc. so I can think about the child and be engaged monthly writing a letter back to her.

Hi Michelle – Thanks for commenting! Some banks (USAA, Capital One, and Bank of America come to mind) actually cut and mail checks to recipients as part of the bill pay rather than doing an ACH transfer. My church is way too small to have autopay set up, so, when I refer to using bill pay, I’m referencing the check mailing service my bank provides.

I had an aunt who supported a child through a similar program, and I thought it was neat that they built up that relationship over the years.

Hey, Jack! Yes, please come back and let us know how that goes if you decide to unautomate (is that a word?) your charitable giving. I used to have mine on automatic bill pay, and have noticed a little difference now that I manually initiate the payments. I’d love to hear some other stories.

This is really interesting advice. I hadn’t really thought of it. We do pay most of ours annually and have them scheduled throughout the year, but there are a couple that we volunteer time and donate money to and that is a wonderful feeling…almost addictive.

The other benefit about the in-person aspect, particularly giving time, is that it also gives you an idea of what you might want to do when you retire. Adam Grant has excellent research on how giving time also makes you feel like you have more time; the psychological benefits of giving, whether time or money, are similar.

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