I had a conversation recently with a friend of mine who threw out a thought that really caught my attention, “Being financially independent is the best thing that anyone could ever do – better than giving to charity. If you are financially independent, you automatically give more to the poor than most Americans, and you save others from having to give to you”. At first, I thought this was kind of harsh (maybe he had a fear of poverty), but it really resonated with me as being particularly true. A recent Washington Times article noted that Americans average giving is 4% of what they earn. So, does the percent of your taxes that fund government charity programs equal more than this?
I thought it would be great to really look and see how much someone who was financially independent “gives” to charity, as well as how much they don’t take from Uncle Sam’s charity. To make the math simple, I’m going to call financially independent as someone who makes $100,000. That would mean they need to give over $4,000 through government wealth transfer to be higher than average.
How Much Wealth You Transfer Each Year
Based on the 2010 Federal Taxpayer Receipt, someone who earns $100,000 would give the following amounts to social “charity” programs (not including Medicare and Social Security):
- Medicade and Children’s Health Insurance Programs: $492.20
- Other uninsured Health Programs: $41.40
- Unemployment Insurance: $202.40
- Food and Nutrition Assistance: $165.60
- Housing Assistance: $101.20
- Earned Income Tax Credit: $161.00
- Child Care Support: $27.60
- Temporary Assistance for Needy Families: $36.80
Total: $1,228.80 – So, not even close to the average amount given to charity, but that is still a large sum.
How Much “Charity” You Don’t Use
So, now I thought it would be interesting to see how much I would save others by not benefiting from government programs. If you make $100,000 per year, as in the previous example, you would not be eligible for any of the benefits that your tax dollars paid for. However, if you were below the federal poverty line for your state, you would qualify for almost all of the programs.
So, for this example, let’s say I’m a family of two – just my wife and I. Combined, we only make $18,000 (At first I didn’t think this was possible, but if you only work part-time, 20 hours per week, at minimum wage of $8.50, you end up at this income level). Since we have no kids, we don’t qualify for some programs, but here is how much we would receive with what we would qualify for:
- Housing Assistance: $1,064/mo for a studio apartment (so $12,768 per year)
- Unemployment Assistance: $93/week for up to 52 weeks ($4,836 per year)
- Earned Income Tax Credit: $1,721
Total: $19,325 per year. And that is with no children! If we did have children, our benefit would increase by around 50%!
So, not having to receive benefits really saves others a ton of money. But how much does it save each person? It is important to note that only about 55% of taxpayers pay income taxes in excess of the benefits they receive. So a whopping 45% of Americans actually get more than they pay in. That means that about 35 million taxpayers have to foot my income. Thank you!
Bottom Line
So, what is the bottom line? Being financially independent does not replace giving to charity – sorry folks! While you do transfer wealth to needy individuals, it doesn’t make up for it all! However, by being financially independent you do save others a boatload of money! While there are truly some in need, that is really a ton of money for a couple without children. They would actually receive more in benefits than they even made in a year. That seems a bit excessive – much more like a handout than true aid.
Think about this – especially students. Next time you go to your guidance counselor tell them that you don’t care what you do, as long as you become financially independent. What will their reaction be!
What are your thoughts? If you are financially independent and pay the bulk of U.S. taxes, do you escape having to give to charity? What about not being a charity case, is that worth something? And do you think it is right how much we actually transfer to individuals?
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This post was written by...
Robert – who has written 317 posts on The College Investor.
Robert is the founder and editor of The College Investor, a personal finance site dedicated to young adult and college student finances. You can learn more about him here and connect with him on Twitter or Facebook.
{ 12 comments… read them below or add one }
You got it my friend. I still donate to charity, but I also recognize that I am a very valuable member of society because I’m not a drain on the system.
I have to say this is a really interesting take. Im in this bracket myself, and I also still donate to charity, but I feel a little bit better about myself now lol.
I completely agree. This is also true in regards to being less of a financial burden to one’s family during retirement.
Jacob, you bring up a good point. Social Security was created to provide for the elderly in retirement. It used to be that if you couldn’t afford to live on your own in retirement, you would move back in with your kids. However, now we just transfer the money from the kids to the parents, and they don’t have to move back in.
To have a vibrant rich society, we want people to flourish. That does not mean that everyone earns a lot of money, however we don’t want people to starve to death either. We depend on non profit and religious organizations to help the needy. They in turn depend on the generosity of society. Rich and not so rich give frequently to various organizations. Giving as a society makes us feel good!
That is a fascinating thought! Never thought of FI that way!
And love your explanation of SS (in your comments!). Once again a very unique perspective!
Thanks!
Great post! Never thought about it this way. I always thought of it traditionally, make more you can donate more. Make more, perhaps you create more jobs. Nice job making us see another way. Good luck to all of us on our quest to not drain our system!
Great post! We have been focused on debt repayment (debt-free now except for the mortgage), then paying cash for our wedding, downpayment, and honeymoon (check, check, check), so now we want to focus more on giving to charity.
Both of us would never want to be a drain on society; however, we recognize that people get into bad situations and need help. I do wish there were more programs or more effective programs of bridging the gap between welfare assistance and getting back on your feet–think about how great it makes people feel to provide for themselves and their family on their own?
There’s an economics book out there titled More Sex is Safer Sex. Hah, not what you’d think.
I wouldn’t necessarily recommend it, but there was one point that gave me a whole new perspective on being generous with your money.
When you give to a charity, you’re picking and choosing. When you sit on your money and put it in the bank, invest it, etc., you give to everyone through lower costs of borrowing, which may help several millions of people all in one go.
Nice article. Small quibble: in your analysis, are you considering the cost of running the government agency that delivers the benefit? For example, what’s the overhead on top of $1,064 a month in housing assistance?
Good point – the government is definitely not an efficient transfer of wealth. But even the best charities average around 90%.