How to give better in 2018: Do more with less money for your family, friends and community

When you’re already juggling many competing financial priorities — from paying bills to saving enough emergency cash — being generous with your money can seem impossible. But evidence suggests that giving can pay dividends, whether that means picking out the perfect birthday present for your best friend or supporting a local charity.

Why? For one, research shows people actually feel happier when they spend money on others than when they do on themselves. A study on generosity and happiness attributes this effect to something called the “self-determination theory,” and argues that giving money away is one of relatively few ways you can fulfill three key human needs at once — ”relatedness, competence and autonomy” — meaning you feel independent, effective and connected to others, all at the same time.

Arguably, giving is even an essential component of financial wellness, New York University economics professor Jonathan Morduch said in a phone interview. “Personal finance requires a sense of agency and possibility [and] charitable giving is part of feeling like you’re in a position to help others,” he said. “Even giving a little changes the way you see the world.”

Yet for most people, spending on others might be a lot easier said than done: One in five Americans is essentially living paycheck to paycheck, according to recent data from Bankrate. So how can you strike a balance between helping yourself and helping others? Here are three ways to have a more thoughtful approach — and maximize benefits for both recipients and yourself.

1. Spend wisely on your closest friends and family

Helping friends and loved ones doesn’t just increase our sense of agency and the way we see the world, it also might even be good for health. Researchers found that those who help support their loved ones not only feel happier but also seem to live longer, according to a 2017 paper from researchers at the University of Pittsburgh.

So go ahead and be generous, by lending your old roommate cash for his business, using your PTO to help your parents move or simply by giving great gifts. Just remember it’s important to set boundaries, so there is no confusion between money being lent or gifted, nor other chances for miscommunication. You want to be able to underpromise and overdeliver with your support — not the other way around. Here are some rules of thumb to help you.

Embrace clever, practical gift-giving

Life events like weddings, birthdays, new babies, job promotions and housewarmings can wipe out even the most generous friend, at least financially. What gives? One factor might be growing social pressure to create Instagram-friendly memories — making elaborate presents, meals and festivities for every occasion seem like the norm, etiquette experts like Lizzie Post warn. In reality, you want to be creative and practical, but not go broke — or seem ostentatious or aggressive — since overspending on gifts can actually make the recipient uncomfortable, too.

The good news: Research on gift-giving suggests the most underrated gifts are also cost-effective and givers actually might not need to worry about their gifts being too practical. In fact, it’s likely to be appreciated if you get golf balls for the avid golfer, diapers for the new parents or a good quality new frying pan for a friend who loves to cook.

How do you set an appropriate budget? For formal occasions, you can look to financial etiquette guides like the Payoff’s on weddings, for which you might spend somewhere between $50 and $300, depending on your financial situation and relationship with the couple. For holidays and other occasions when you need to get multiple presents, Wired has a clever formula you can use to prioritize those you care most about — without busting your budget.

Don’t forget the power of a good DIY personalized present: Investing a little time to sleuth for ideas and create or find something truly original — like a bespoke board game or letter from a long-lost friend — can mean the cost of your great gift is far lower than its emotional impact would suggest.

Another chronically underrated present? For the right person, giving someone the gift of free time — whether that means kicking in money for a babysitter or cleaning the communal fridge — may be more appreciated than any material purchases you could make, some research suggests.

Finally, remember that small gestures make a big difference: If you’re worried about showing up to an event or party empty-handed, for example, a nice baked good or inexpensive but high-quality bottle of wine will go a long way.

Invest in your relationships

It can cost nearly $240,000 to raise a kid, so when you’re all grown up you’re going to want to return the favor. In fact, nearly two-thirds of children surveyed by GOBankingRates said they planned on supporting their parents when they enter old age.

Sure, if you can afford it, surprising them with a thrilling trip or the car of their dreams would be a great way to show your appreciation. But remember it might be even more important to be generous with your time — and that weekly phone call. Some research suggests more regular contact may help older family members live longer. You could benefit, too: Other research shows simply hearing your mom’s voice causes your body to release the same amount of stress-relieving oxytocin as does receiving a hug.

You might give to a brother or sister (or other family members) for many of these same reasons, especially if you are close. But some cases can be a murkier, as LearnVest reported in one cautionary story about sibling lending: Although the sister in question did not regret giving her brother money, she was more upset with the way in which he spent it (on a puppy and expensive gifts for his children). Before you offer any cash to help family, be truthful with yourself about how you will feel if the money is not spent in a manner in which you deem important or necessary.

Strike a balance when spending on your kids

Kids are already expensive, and while you’ll want what’s best for them, being too generous and lenient can actually set them up for trouble later in life. One study of more than 1,000 children in New Zealand found kids who don’t learn self-control when they’re young are predisposed to financial problems and more later in life. The theory is that when you cater to their every whim, you’re stunting your child’s ability to delay gratification.

Child psychologists generally recommend rewarding and providing incentives to children that can motivate lasting positive behaviors, as opposed to temporary ones: “While dangling extra TV, ice cream or story time in front of a child asks less of us,” Alfie Kohn, author of Punished by Rewards said to PBS Parents, “it can never get anything more than temporary obedience — and it buys even that at terrific cost.”

Keep in mind that rewards don’t always mean spending or giving money, according to Pennsylvania Family Support Alliance. You could offer special privileges or offer to drive your child and friends to the movies as a reward. You might try not to use rewards as bribes — and don’t promise what you can’t deliver. In other words, if you tell your child she can get a car for making straight As, prepare to shop for that car.

Be cautious when offering a loan

Finally, remember that giving a loan can be just as meaningful as a gift — but mixing friendship and finances can also quickly get complicated. In fact, 43% of consumers say they would be willing to end a friendship with someone who owed them money, according to a Bank of America survey. And more than three quarters of respondents said “IOUs” can be harmful to friendships.

Yet, turning your back on a friend who needs your help is hardly a good alternative. If you’re going to lend a friend or family member money, avoiding opportunities for miscommunication is imperative, so be clear about whether the money is a gift or a loan upfront, as the New York Times suggested.

Then get everything in writing with a formal contract or promissory note outlining the arrangement — here’s a template. Getting the agreement on paper and (if the loan is large) charging some interest can help protect you from tax penalties and keep expectations about repayment clear.

Still, no one wants to borrow money from someone who expects servile behavior in return; giving should be pure hearted and without excessive strings attached, even if it is a loan. You don’t want a small amount of money to ruin your relationship: Of the respondents in the Bank of America survey, 34% said they would consider ending a friendship over $100 or less.

On the other hand, if you’re lending someone a large amount, you do need to make sure you can truly afford to give the gift or loan — and be clear and concise about the offering, as U.S. News & World Report suggested.

2. Offer money or time to your local community

Helping your community is a win-win. One study in Portland, Maine, estimated that if residents shifted just 10% of their spending from chains to local businesses, they would generate some $127 million in new economic activity, and nearly 900 new jobs. Through the donation of their free time, volunteers generate roughly $400 billion in global economic activity each year.

So what are the best ways to help your local area? It might not seem obvious, but a simple way to get started — beyond supporting mom and pop shops — is to be generous in tipping service workers you encounter every day: They may be paid very low base wages and rely more heavily than you realize on gratuities. Here’s a Payoff guide to how much to tip in different situations.

You might also lend your time rather than cash and look at community volunteer opportunities, either through a local organization — including soup kitchens, tutoring programs, outdoor cleanup projects and animal shelters — or through an international organization with regional offices like United Way.

Another option: Lobbying local officials through petition drives or canvassing neighbors to support investing in your town or neighborhood can help make it a better place. You could help support better infrastructure, for instance: “Developing a system of sidewalks leading to a downtown, shopping district or local school adds more value to the neighborhood than disjointed sections of sidewalk,” Cheryl E. Kuck, public information officer for the City of Portland Bureau of Transportation said to House Logic.

If lobbying for better sidewalks sounds dry, consider becoming the driving force behind a creative incubator program like the “Soup” initiative to promote the arts and beautify the city of Detroit. People who attend a single art event inject an additional $25 into the local economy through spending on food, parking accommodations and souvenirs. The monetary contribution buys dinner, discussion and a vote on several city improvement projects that are presented during the dinner. Grant money is allocated toward one project, which the group tracks throughout the implementation process.

Now if you don’t live in a big city, it can be harder to find creative programs like Soup in more isolated towns and suburbs. You might consider starting an initiative of your own with the help of your neighbors or other friends in the community. Don’t have many local friends? You aren’t alone, as people are increasing disconnected from neighbors: Only about 20% of Americans spend time regularly interacting with their neighbors, economist Joe Cortright has found, though four decades ago, a third of Americans said they saw their neighbors at least twice a week.

To be a better neighbor, you might simply be generous with compliments and welcoming of newcomers. And while small gifts of food are a nice touch, just being quiet, clean and polished can be gift enough. After all, one way to boost your whole subdivision’s value is to enhance your own curb appeal. You can add small touches like plants and lighting to your porch or yard, and repaint your exterior — or at least the front door — to help ward off crime (and make your home more attractive for when you sell), as HuffPost suggests.

3. Use your funds to help the world

While we’re obviously all better off when we support our closest friends and local community, financially and otherwise, there’s also a case to be made that those who can have an obligation to try to help the world at large.

After all, just as clean local parks can improve a town’s morale in ways you might feel indirectly, by helping people across the globe, you are indirectly contributing toward a happier, healthier and safer world for everyone. Or at least that’s the goal, right?

As it happens, there’s a school of thinkers called “effective altruists” who argue that philanthropists need to be more deliberate about directing their donated time and money to where it can do the most good. Since the more selfish reasons we give money away — the fuzzy feelings, tax breaks, networking opportunities and prestige — can be distracting, it’s important to think more critically about whether donations are actually doing the most possible good.

“For most people, the point of giving is not to maximize the good in the world, it’s to contribute to something you have some relationship with,” Tim Ogden, managing director of the Financial Access Initiative and vice chairman of the board of GiveWell, said in a phone interview. “The effectiveness of each dollar is not a first-order question. Instead, it’s someone saying, ‘Hey, I want to support my local children’s hospital.’”

Rather than that approach, if you really want the most bang for each charitable buck, you’ll want to focus on philanthropic activities that address extreme poverty — to alleviate the most suffering and make each dollar go further, Morduch said. One of the most high-profile backers of this approach is the Bill and Melinda Gates Foundation: CEO Sue Desmond-Hellmann wrote back in 2015 that “meaningful change isn’t created by good intentions alone.”

How can you personally be a more effective altruist? A lot of it has to do with finding cheap ways to do a lot of good. Effective altruists like the Australian philosopher Peter Singer often point to the Against Malaria Foundation, which distributes mosquito nets to children in malaria-prone regions, as an example of high-impact effective altruism at work.

Some other popular charities among effective altruists include the Deworm the World Initiative, which helps governments deworm children in poor countries for about 50 cents per person annually, and GiveDirectly, which disseminates small unconditional cash grants to people living in extreme poverty in Kenya and Uganda.

Now, this approach can be limiting, as NYU’s Morduch pointed out. If effective altruists ran all charitable giving, we might not have many libraries, parks, animal welfare groups or museums — which clearly have social value, too. And since the goal is maximizing impact, some high profile effective altruists also argue that working on Wall Street is more altruistic than working for a charity, because by earning more money you have more to give away; that, for some people, might feel like trading one ethical problem for another.

If you hope to strike a more balanced approach, there’s no reason you can’t do both — give money to initiatives focused on extreme poverty (where you think it will do the most good, dollar for dollar), and also give money to the local places, people and causes that have personal meaning to you.

Need help deciding on the specifics? Independent watchdog groups like GiveWell, Charity Navigator and Charity Watch can all help you vet organizations before you send them your hard-earned cash.

And if you don’t have much money to spare, don’t worry: Donating your time to the causes you care about might actually be the most effective way to do good in the world, Morduch said. “The big forces that shape society, especially for the disadvantaged, are political,” he said. “But today it’s not clear that that’s a better use of resources and time than knocking on doors and getting out the vote and helping your neighborhoods.”

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