From WSJ (subscription):

It’s the holiday season; a time when many open their checkbooks (or go online to make payments) to support their favorite charities. Researchers have found three mistakes commonly made by charitably minded people:

• Martyrdom effect:  “One of the biggest errors people make involves a phenomenon that one of us, Dr. Olivola, calls the “martyrdom effect”—the tendency to prefer forms of giving that involve significant sacrifice and effort, such as running marathons or taking the ice-bucket challenge. This means that when we assess the trade-offs of various forms of giving, we are biased to admire the more-challenging ways of helping (e.g., volunteering in a poor country), even when easier means (e.g., donating money) are far more effective. Instead of donating money to a medical institute, we decide it’s better to participate in an endurance-cycling fundraiser.”

• Unexpected joy of giving: “Most people assume that generosity involves sacrifice: We are giving something up so someone else can have more. Charity might get us to heaven, but it probably won’t make us happy, at least here on earth. But this assumption turns out to be largely incorrect. In fact, many people experience a bigger boost in happiness when they spend money on other people. In these cases, giving is literally better than getting.”

• Other-Nothing neglect: “In another research project, Dr. Olivola asks people to consider trade-offs between selfish and generous outcomes. A typical choice: They can choose to receive $15 for themselves or to have Unicef receive $35. Although it may seem like a simple trade-off, people tend not to think through such choices carefully. We are cognitively lazy creatures, with limited mental bandwidth, which means that we can’t contemplate the opportunity cost of every alternative. In fact, Dr. Olivola has found that our attention to these opportunity costs is asymmetric: We are quick to consider what we stand to lose by being generous but slow to consider what others stand to lose if we choose to be selfish.

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See if your students make the same mistakes that the researchers uncovered:

• What do they think is more valuable: giving time or money to a charity they believe in? Why?
• Have you ever volunteered and/or donated money to a charity? How would you describe that experience? How did it make you feel?
• Ask students to make a choice between receiving $15 for themselves of donating $35 to the charity of their choice. What would they decide and why?

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Be sure to check out the new NGPF lesson on Philanthropy!

About the Author

Tim Ranzetta

Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.

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