A misleading opening statement
A journalist from MarketPlace Money started a segment by stating “Poorer folks tend to give more to charity than richer ones. It’s true.”
This was based on a study by the Chronicle of Philanthropy that showed “those who earn $50,000 to $75,000 donate about 8% of their discretionary income. This is twice as much, percentage-wise, as those making above $200,000.”
I call BS!
What they were saying
Here is a graphic representation of what the report was trying to say:
As a side note: Households making $50,000 is the average income in America and is not considered poor, but I digress.
What was left out
The NET is what was not offered in this report. What is “Net”? It’s the end total after all adjustments, deductions, subtractions, additions, and calculations have been made. It is what is left over after all the dust has cleared.
In this case it was omitted to make it sound like “the rich” aren’t giving as much as the average American.
Here is the real math
If Family A is giving eight percent and Family D gives only four percent, half the percentage of A, then why is the amount of money Family D gives four times as much?
This type of reporting is incomplete, misleading, and just plain wrong! One mention of “percentage-wise” in a five-minute report does not excuse the other 99% of the commentary with comments like “[Wealth] gets you to be a little more disengaged from other people and a little more focused on yourself.”
Other bad advice: The disregarding of Net
Listen closely and you will hear the following excuses for keeping debt around or making investment choices based on percentages, not net:
- Take out a mortgage because “it’s cheap money”
- Invest instead of paying off debt because “you can make more in the market”
- Don’t pay off student loans because “it’s good debt“
- Keep a mortgage because “you need the tax deduction”
- Invest in a Traditional IRA to save on income tax rather than an after-tax ROTH
- Always pay down the highest interest rate credit card first
Don’t take my advice: Prove it to yourself
Want to know if any of the above statements are actually true? Don’t take my word for it, get your calculator out and do the math yourself. If you need help then give me a call. We can spend 30 minutes on any personal finance topic of your choosing and I’ll show you how the Net effect of money out of your pocket will almost always be better than talking Percentages.