The corect answer is: "...Bilbo gave a few pennies away..."
In characterization, the auhtor reveals fictional characters' natures and personality. There are two ways to do it, by direct characterization and by indirect characterization.
In direct characterization, the author explicitly describes the character's personality. In this case, "...Mr. Baggings was generous with his money..." is an example.
Indirect characterization doesn't explicitly tell you the character's personality or characteristics. These are shown by the characters actions, speech or appereance. Here, you as the reader, have to put attention to discover the character's personality.