On Giving and Interpretting
How closely do you listen to the news?
Today while driving home from a holiday party, I was listening to NPR’s Marketplace Money by KQED. One of the pieces was talking about how lower income people are more giving than higher income people. My immediate question was, “by what measure?” Fortunately, the commentator was good enough to share that information — lower income people are more giving when measured as a percentage of their disposable income given away.
Well, that certainly adds some texture, I thought. I found this graphic (in this article) which shows a similar trend (this graphic is before tax income though, so the numbers are skewed a little more towards the poor):
What I personally notice about this is that each quintile actually gives more as a total amount than the previous quintile.
| Avg Income | Giving % | Giving Amt | Moving sum | % Of moving sum | % of total |
|---|---|---|---|---|---|
| Â $10,531.00 | 4.3% | $452.83 | $452.83 | 100% | 6% |
| $27,674.00 | 2.5% | $691.85 | $1,144.68 | 60% | 10% |
| $46,213.00 | 2.7% | $1,247.75 | $2,392.43 | 52% | 17% |
| Â $73,460.00 | 2.0% | $1,469.20 | $3,861.63 | 38% | 20% |
| $158,888.00 | 2.1% | $3,336.65 | $7,198.28 | 46% | 46% |
Indeed, another way to talk about this same data is that high earners (top 20% of income) give nearly half of all money donated each year, which sounds a lot different but is a true statement about the same data.
However, the NPR piece didn’t stop there. They next talked about a study where participants were given $10 and the opportunity to give away any amount of the $10 to another, anonymous, participant. I was npt able to quickly find supporting documents, but the claim was that lower income people gave away an average of $7, keeping $3 for themselves, while higher income people gave away an average of $3, keeping $7 for themselves. The interpretation again was that poor people are more generous and more likely to donate money than rich people.
Again, I thought about it a little differently. This effect shown is correlation and not causation, so the given interpretation is an example of the most classic mistake of statistics. Perhaps, I wonder, are people who are less giving naturally more likely to have high incomes? In other words, does causation go the other way? How would this hypothesis even be tested? And what are the confounding factors?
I try to listen to the news carefully and question everything I hear. In addition to the news just being wrong — in several cases where I’ve known more than what’s presented in a newstory, I’ve seen large omissions and fabrications — there are always alternate explanations and interpretations than the one assumed by the presentation. Despite trying, I still often find myself believing, on a whole, the news as presented by the media I consume.
December 17th, 2012 at 09:33:06 am
What’s curious about your graph is its relation to the happiness vs. income graph:
http://wws.princeton.edu/news/Income_Happiness/Happiness_Money_Summary.pdf
Empirically, people are happier with more money up to a certain household income, at which point their happiness begins to decrease. Imagine a bell curve where the peak is the amount of income needed to live comfortably.
I believe that graciousness and generosity are huge causes for happiness, and it’s possible that the people in the study you’re citing who give more are happier for it, even if it’s a larger percentage of their disposable income.
I’m not giving an empirical argument here — just making a claim that I believe is correct :).
December 24th, 2012 at 11:56:08 am
That is super interesting. One thing that stuck out to me a lot in that pdf is that people’s responses increase in relationship to the percentage changes in income, not absolute changes. So, applying that back to the table above, those that a higher percentage of their income may get a larger benefit of the charitable feeling even though they are donating less in absolute terms.
Going one step further, in the pdf you shared, people’s self-reported happiness generally goes up with income but happiness levels off while income does not — at the time of the survey, there simply was not a lot of increase in happiness after $75k income. I note that this lines up pretty well with the 4th quintile in the table above — people spend a lower percentage of their income in charity up until about $75k/year, and then they start spending a higher percentage (not much in percentage terms, but much more in absolute terms). One interpretation could be that when people start getting less marginal value of keeping the next dollar themselves after $75k, they start giving a little more away on the marginal dollar.
It could also be said that the poorest, who self-report the least happiness, try to buy some through their charity. Of course, it may simply be that they identify with the plights of others more quickly, and give out of that empathy.