How much can you afford to give?

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One question that occasionally comes from clients is the following:

"I give $2,500 a year to charity. Can I afford to give this? What if I gave $5,000 a year, would that be something I can budget? Is there a smarter way to give?"

These are reasonable questions, but how do you answer them?

Here is the answer you're most likely to get from an investment adviser:

"If you are feeling comfortable from a cash-flow perspective, you can probably afford what you are giving. You might be able to do more, but I wouldn't do too much at this stage."

The reason for this general and fairly vague answer is simple: The adviser has no way of knowing and, in general, would rather clients kept more money invested and gave less away.

There is a better answer.

I believe that if Canadians had a better handle on what they could afford to donate, in many cases they would be comfortable giving more. To help with this, TriDelta has put together an online tool called the Donation Planner, which answers the basic question: "How much could I afford to give?"

In many cases, the number will surprise you.

Charities that want to answer this question for their donors can brand the donation planner and put it on their website.

Why is this whole question and discussion important?

In many cases, Canadians give less than they want to because they do not include charitable giving as part of their financial-planning discussions. They often don't understand the true tax implications of giving while they are living. To support the point, we only need to look at how Canadians give versus Americans.

In Canada, we donate much less than Americans. A Fraser Institute study called " Generosity in Canada and the United States," based on the 2007 tax year, shows that in the state of New York, 30.3 per cent of tax filers made a donation, and donations represented 1.85 per cent of their taxable income. Across the border in Ontario, 25.7 per cent made a donation, but it represented just 0.84 per cent of our taxable income. In Ontario, we are giving 45 per cent as much as those in New York.

Given the relative prosperity of Canadians these days, we should be able to see greater support for our vital charities than our neighbours to the south. There are some cultural and tax reasons behind the differences in giving, but one of them is simply that many of us don't really know how much we could afford to give.

Now is as good a time as any to start to include this in your family discussions or in those with a financial planner.

Ted Rechtshaffen is president and CEO of TriDelta Financial Partners, a firm that provides independent financial planning advice. He was vice-president of business strategy at a major Canadian brokerage firm and found that the interests of the client were often not aligned with the interests of the adviser or the interests of the company.

This is part 10 in a series that looks inside the financial services industry at what advisers tell their clients and - more importantly - what they don't.