Related to: Fight zero-sum bias
In 2006, Americans donated 2.2 percent of their average disposable, or after-tax income.
The Department of State report commends the charitable giving practices of Americans as follows:
“The total amount of money that was given to nonprofit institutions is remarkable,” [Richard Jolly, chairman of Giving US] said. “What we see is when people feel engaged, when they feel a need is legitimate, when they are asked to support it, they do.”
Americans have a long tradition of charitable giving and volunteerism -- the donation of time and labor on behalf of a cause. When disasters happen or a social need arises, government clearly has a responsibility, Jolly said. “But it’s also obvious Americans believe they, too, can make a difference, and they reflect that in terms of giving away a lot of money.”
The United States is “a land of charity,” says Arthur Brooks, an expert on philanthropy and a professor at Syracuse University’s Maxwell School, who sees charitable giving and volunteerism as the signal characteristic of Americans.
For my own part, I think that what Jolly, what Brooks, and what the Department of State report have to say about American charitable giving is absurd. I think that the vast amount of American "charitable giving" should not be conceptualized as philanthropy because the donors do not aspire to maximize their positive social impact. Even aside from that, from a utilitarian point of view, in view of world economic inequality and existential risk, a donation rate of 2.2% looks paltry. As the title of Peter Unger's book Living High and Letting Die: Our Illusion of Innocence suggests, there's a sense in which despite appearances, many Americans are guilty of a moral atrocity.
In light of my last few sentences, you may be surprised to know that I don't think that Americans should sacrifice their well-being for the sake of others. Even from a utilitarian point of view, I think that there are good reasons for thinking that it would be a bad idea to do this. The reason that I say that many Americans are guilty of a moral atrocity is because I think that many Americans could be giving away a lot more of their money with a view toward maximizing their positive social impact and lead more fulfilling lives as a result. I say more about this below.
In Peter Singer's The Life You Can Save Singer writes
On your way to work, you pass a small pond. On hot days, children sometimes play in the pond, which is only about knee-deep. The weather’s cool today, though, and the hour is early, so you are surprised to see a child splashing about in the pond. As you get closer, you see that it is a very young child, just a toddler, who is flailing about, unable to stay upright or walk out of the pond. You look for the parents or babysitter, but there is no one else around. The child is unable to keep his head above the water for more than a few seconds at a time. If you don’t wade in and pull him out, he seems likely to drown. Wading in is easy and safe, but you will ruin the new shoes you bought only a few days ago, and get your suit wet and muddy. By the time you hand the child over to someone responsible for him, and change your clothes, you’ll be late for work. What should you do?
I teach a course called Practical Ethics. When we start talking about global poverty, I ask my students what they think you should do in this situation. Predictably, they respond that you should save the child. “What about your shoes? And being late for work?” I ask them. They brush that aside. How could anyone consider a pair of shoes, or missing an hour or two at work, a good reason for not saving a child’s life?
Now think about your own situation. By donating a relatively small amount of money, you could save a child’s life. Maybe it takes more than the amount needed to buy a pair of shoes—but we all spend money on things we don’t really need, whether on drinks, meals out, clothing, movies, concerts, vacations, new cars, or house renovation.
Most people value the well-being of human strangers. This is at least in part a terminal value, not an instrumental value. So why don't people give more money away with a view toward maximizing positive social impact? Well, as Eliezer says, people have many values, they don't just value helping others in need, they also value status, comfort, sex, love, security, music, art, friends, family, intellectual understanding and many other things. Each person makes an implicit judgment that a life involving donating substantially more would be a life less satisfying than the life that he or she is presently living. Is such a judgment sound? Surely it is for some people, but is it sound on average?
A fundamental and counterintuitive principle of human psychology is the hedonic treadmill. The existence of a hedonic treadmill in some domains does not imply that it's impossible for current humans to take actions to become happier. What it does imply is the initial intuitions that humans have about what will make them happier are probably substantially misguided. So it's important for people to critically examine the question: does having more money make people happier? Wikipedia has an informative page titled Happiness Economics with some information about this question. For people who are so poor that their basic needs are not met, it's plausible that people's income plays an important role in determining their level of life satisfaction. For people who have more than enough money to accommodate their basic needs, some studies find a correlation between income and self reported life satisfaction and others do not. If there is a correlation, it's small, and may be borne of a third variable such as intelligence or status.
The question then arises: is the amount of focus that Americans place on acquiring material resources (instrumentally) irrational? Three possibilities occur to me:
(A) The very activity of acquiring material resources is a terminal value for most people. People would be less happy if they focused less on acquiring material resources, not because they find having the material resources fulfilling but because they find the practice of acquiring the material resources fulfilling.
(B) Self reported life satisfaction is such a bad measure of subjectively perceived life satisfaction that the low correlation between income and self reported life satisfaction is grossly misleading.
(C) People's focus on acquiring material resources is in fact irrational, borne of a now-maladaptive hoarding heuristic inherited from our ancestors. People falsely believe that acquiring resources is instrumentally valuable to them to a greater extent than it actually is. Americans would be better off placing less emphasis on acquiring resources and more emphasis on other things.
I don't know which of (A), (B) and (C) is holds. Maybe each possibility has some truth to it. I lean toward believing that the situation is mostly the one described in (C), but I'm a very unusual person and may be generalizing from one example. What I would say is that individuals should seriously consider the possibility that their situation is at least in some measure accurately characterized by (C). To the extent that this is the case, such individuals can give away a greater percentage of their income, cutting their "effective income" without experiencing a drop in life satisfaction. In fact, I find it likely that many individuals would become more satisfied with their lives if they substantially increased the percentage of their income that they donated. In the last few pages of "The Life You Can Save" Singer writes:
A survey of 30,000 American households found that those who gave to charity were 43 percent more likely to say that they were "very happy" about their lives than those who did not give, and the figure was very similar for those who did voluntary work for charities as compared with those who did not. A separate study showed that those who give are 68 percent less likely to have felt "hopeless" and 34 percent less likely to say that they felt "so sad that nothing could cheer them up." 
The link between giving and happiness is clear, but surveys cannot show the direction of causation. Researchers have, however, looked at what happens in people's brains when they do good things. In one experiment, economists William Harbaugh and Daniel Burghart and psychologist Ulrich Mayr gave $100 to each of nineteen female students. While undergoing magnetic resonance imaging, which shows activity in various parts of the brain, the students were given the option of donating some of their money to a local food bank to the poor. To ensure that any effects observed came entirely from making the donation, and not, for instance, from having the belief that they were generous people, the students were informed that no one, not even the experimenters, would know which students made a donation. The research found that when students donated, the brain's "reward centers" - the caudate nucleus, nucleus accumbens, and insulae - became active. These are the parts of the brain that respond when you eat something sweet or receive money. Altruists often talk of the "warm glow" they get from helping others. Now we have seen it happening in the brain. 
 Arthur Books, "Why Giving Makes You Happy," New York Sun, December 28, 2007. The first study is from the Social Capital Community Benchmark Survey while the second is from the University of Michigan's Panel Study of Income Dynamics.
 William T. Harbaugh, Ulrich Mayer, and Daniel Burghat, "Neural Responses to Taxation and Voluntary Giving Reveal Motives for Charitable Donations," Science, vol. 316, no. 5831 (June 15, 2007), pp. 1622-25
I'll corroborate Singer's suggestion that donating makes one happy with my own experience. Many of the first 24 years of my life were marred by chronic mild depression. The reasons for this are various, but one factor is that I always felt vaguely guilty for not doing more to help others. At the same time, I felt immobilized. My thought process was of the following type:
I know that the world has a lot of problems and that I could be doing much more to help. There are billions of poor people around the world who need my money a lot more than I do. Every day my life habits use natural resources and destroy the environment. If I only bought what I strictly needed I would use fewer natural resources and I could donate the rest of my money to help poor people far away. If I spent all of my spare time doing community service I could help the poor people nearby.
The problem is that I don’t have enough willpower to do it. I like thinking about math, I like reading for pleasure, I like playing video games, I like buying sandwiches rather than making them myself even though it would be cheaper if I made them myself. Though I hate myself for it, apparently I care a lot more about myself than I care about other people. I’m just not a good enough person to do what I should do. I’m happier when I don’t think about it than when I do, and I do the wrong thing regardless, so I try not to think about it too much. But I know in my heart-of-hearts that the way I’m leading my life is very wrong.
I had never donated anything substantial to charity before last October. Things changed for me when an old friend encouraged me to give something to the charities recommended by GiveWell. Before I looked at GiveWell, I had drearily come to the conclusion that one cannot hope to give in a cost-effective fashion because there's so much fraud and inefficiency in the philanthropic sector. I was greatly encouraged to see that there's an organization making a solid effort at evaluating charities for cost-effectiveness. At the same time, I had some hesitation to donate much because
(1) I'm a graduate student making only $20,000/year. I had thoughts of the type "Does it really make sense for somebody making as little as me to be donating? Maybe I should wait until I'm making more money. Maybe donating now will interfere with my ability to function which will impede my ability to donate later on."
(2) The causes that GiveWell has researched are not the causes that I'm most interested in.
But in the end, with some further nudging from my friend, I ended up donating $1000 to VillageReach. Once I gave, I felt like giving more and in December gave $500 more to VillageReach without nudging from anyone. Retrospectively, I view my initial objections (1) and (2) as rationalization arising from the maladaptive hoarding instinct that I hypothesize in (C) above.
- In regards to (1), the truth is that I was spending a lot of money on things that were systematically failing to improve my functionality or make me happier. Also, I recently learned that people with annual household income under $20,000 give 4.3% of their money to charity. (Oddly enough that's a substantially greater percentage than the percentage that the average American gives!). This suggests that donations on the order of $1000/year are well within the means of somebody of my income level.
- In regards to (2), the fact that there are not presently good opportunities to donate in the areas that I'm most interested in has no bearing on whether or not I should be donating. It's easy to say "I'll save the money and donate later" and end up spending the money instead.
What effect did donating have on me? Well, since correlation is not causation, one can't be totally sure. But my subjective impression is that it substantially increased my confidence in my ability to act in accordance with my values, which had a runaway effect resulting in me behaving in progressively greater accord with my values; raising my life satisfaction considerably. The vague sense of guilt that I once felt has vanished. The chronic mild depression that I'd experienced for most of my life is gone. I feel like a complete and well integrated human being. I'm happier than I've been in eight years. I could not have done better for myself by spending the $1500 in any other way.
The next $1500 that I donate won't have a comparable effect on my quality of life. I already feel as though I should donate more the next time around. I'm on a new hedonic treadmill. But this treadmill is a more fulfilling treadmill. Rather than spending my money on random things that don't make me happier, I'm spending my money on making the world a better place, just as I always wanted.
The question now arises: if you, the reader, donated substantially more than you usually do with a view toward maximizing your positive social impact, would you become happier? Maybe, maybe not. What I would say is that it's worth the experiment. An expenditure on the order of 5% or 10% of one's annual income is small relative to one's lifetime earnings. And the potential upside for you is high. I'll leave the last word of this post to Singer:
Most of us prefer harmony to discord, whether between ourselves and others or within our own minds. That harmony is threatened by any glaring discrepancy between the way you live and the way you think you ought to live. Your reasoning may tell you you ought to be doing something substantial to help the world's poorest people, but your emotion may not move you to act in accordance with this view. If you are persuaded by the moral argument, but are not sufficiently motivated to act accordingly, I recommend that instead of worrying about how much you would have to do to live a fully ethical life, you do something that is significantly more than you have been doing so far. Then see how that feels. You may find it more rewarding than you imagined possible.
Added 07/25/10 at 6:21 CST: In the comments below, Unnamed refers to some very relevant recent research by Elizabeth Dunn and coauthors.