To help think through our moral obligations around charitable giving, you can step through the somewhat-famous "drowning child" thought experiment here. It starts with a simple scenario: you pass by a pond where you see a child is drowning - do you have a moral obligation to try to save the child? And then it expands from there to the conclusion that we should give more to charity. I just have one issue... The final part of the thought experiment (on that site, at least) implies that we have an obligation not just to give but to do so "within the next few days". Why? Suppose I make $1 every day that I can give to charity. Why would it be better to give $1 every day than to give $365 once a year?
The timing is different than in the drowning child scenario because saving a drowning child today does not in any way prevent me from saving a different child tomorrow. But with donating money, a dollar I donate today is a dollar I cannot donate tomorrow. And since not all charitable opportunities are equal, we should be picky about where we donate our money. So IMO the thought experiment should encourage people to at least take the time needed to choose the right charity.
But even if you have figured out which charities to support (shout out), what is the best frequency for giving? I don't know. I'm torn between a few options:
Once a year. AFAIK, this is most common. The main benefit is that you can give in larger amounts at a time, and this page by Against Malaria Foundation (rated #1 most effective charity by GiveWell, Giving What We Can, and The Life You Can Save) helps explain why that matters. Basically, you can minimize transaction/overhead costs and therefore can do more good per dollar given.
Once a month. For the same overall amount, this may not be as efficient as annual giving. However, if you just plan on giving annually, there's a good chance you will find an excuse to spend some of that before the year is up or keep more of it for yourself when the time comes to write that check. So, when considering the human element rather than just financial efficiency, you may end up giving much more overall if you give more frequently.
Right before you die. Yep. Just save/invest everything you can and only give to charity at the end of your life. This suggestion shocked me at first, but there's a pretty good case for it. Robin Hanson makes this argument, and you can read a summary here. Basically, if you invest X dollars throughout your life and then donate it just before you die, you will have given much more overall than if you gave it sooner. And the only reason he suggests giving it before you die is because giving after you die is "legally complicated".
That idea hurts my brain; I can't decide what my opinion should be. By the same logic, if it weren't for the "legal complications", should nobody currently give anything to charity as long as "the real rate of return on investment (is) higher than the growth rate"? That seems absurd, but yet is it really that different from the reason why giving annually is better than giving daily? AGH! I think this also points to one of the most difficult problems with utilitarianism in general: how to value the long-run versus the short-run.
The most convincing argument I've seen against Robin Hanson's viewpoint is this post by GiveWell. Basically, there are good reasons to think that world poverty is currently shrinking at an incredibly fast pace. So although we may be able to give more money overall by investing everything now, the current charitable opportunities actually provide much more bang-per-buck than will likely exist at the end of our life. You can find Robin Hanson's take on that here.
I'm beginning to wonder if I should just accept the uncertainty of all this and split my approach equally between the three giving-intervals I listed above. I'm interested in anyone else's thoughts.
Transaction costs are a problem, especially for do-gooders who call in to donate a whole five dollars. But that can actually be turned around on its head (though possibly unsustainably) with Dwolla, an instant payment system. Free money transfers under $10. With that, I could see scheduling a daily or weekly contribution that has absolutely no overhead costs. Ironically, while all charities accept credit cards, I don't know of any who accept Dwolla.
ReplyDeleteI like the strategy of "right before you die", but not for the given reason. Sure, if you invest your future contribution, you'll donate a nominally larger amount. But -- it'll be later, so it won't be worth as much. The future value of any amount of money decreases with time. Plus, it's most likely a mistake to think that you can get a higher rate of return than a charity. Charities can invest money also. They can play the stock market or even use their large coffers to do things individual investors typically cannot, like join a hedge fund.
So why do I like giving just before death? Because I wouldn't put a charity before my own needs, and by giving just before death (ideally just a few minutes before), I ensure that I am not destitute through an unlucky turn of events.
I don't understand why more places aren't using Dwolla. I guess part of the problem is just that it's not international? And people want to minimize the number of payment systems they support?
ReplyDeleteAnyway, I don't think those downsides of investing-then-giving outweigh the upsides. As for inflation, I'm assuming you can grow your money at a faster rate than that, so it is a real gain. Also, a charity could invest some of the money given but not as much of it; if they did nothing but invest, they wouldn't qualify as a charity. If I use a charity as a vehicle for investing-then-giving, that's just an extra middle man with more operating costs. Plus, a big part of getting the maximum impact is giving to the most effective charity. If I personally invest my money, I can try to pick that charity at the time I donate it. But if I give it to a charity now to invest-then-use, who's to say they will still be a good charity (relative to other options) when they eventually cash out the investment? Although I suppose there could be a charity that exists specifically for that goal...
I assume that any way we know to passively increase our money (through various ways of investing), an organization can do better and cheaper. As a quick example, Vanguard offers "Admiral Shares" for some of its mutual funds, with a significantly lower expense ratio yet a higher minimum balance to qualify. So while it's true that we can grow our money faster than inflation, so can our organization of choice.
ReplyDelete"Also, a charity could invest some of the money given but not as much of it; if they did nothing but invest, they wouldn't qualify as a charity."
I don't know of any limits on how much a non-profit can invest vs. immediately spend. I just checked Susan G Komen's latest financial report; as of FY 2011 they have $407 million in "cash and investments", while having spent $334 million on the entirety of research, education, screening, and treatment. The FY 11 change in net assets is $30 million. They're not exactly operating hand-to-mouth.
At the extreme, I could imagine a charity being justified to not spend any money on their mission -- saving and investing it all -- in a given month or even year because of market conditions. For example, a charity for natural disaster aid might have a year without any natural disasters, yet scheduled contributions keep coming in.
So I don't think you're doing a charity a favor by holding on to your future gift in the name of investing it. If a charity agreed with you that that's what's best, they surely would do that. If they choose to spend it, then surely you wouldn't second-guess them.
I agree about the general concern of "who's to say they will still be a good charity (relative to other options) when they eventually cash out the investment," but that'll always be a concern. No charity is forced to spend your money within X years.
So to clarify my point, the only justification I've seen that I agree with for holding on to your future donation is to insure yourself against needing that money in the future.
DeleteAn interesting option for charities might be to offer a promise that you need your donation back because you've fallen on hard times, you can get back most or all of it. A warranty, if you will.
On an unrelated note, have you considered linking your blog with G+ comments? It's a new feature Google introduced that I find very convenient.
These are good points I hadn't considered (still skeptical though):
Delete> an organization can do better and cheaper. As a quick example, Vanguard offers "Admiral Shares" for some of its mutual funds, with a significantly lower expense ratio yet a higher minimum balance to qualify.
If the goal is to maximize ROI, surely there are better organizations to go through than a charity? If not that seems kind of like a market failure.
> I don't know of any limits on how much a non-profit can invest vs. immediately spend.
I found out (if the wikipedia page for the Bill & Melinda Gates Foundation is to be trusted) that charities must donate at least 5% of their assets each year to qualify as a charity.
> I agree about the general concern of "who's to say they will still be a good charity (relative to other options) when they eventually cash out the investment," but that'll always be a concern. No charity is forced to spend your money within X years.
Right, but determining that is part of the calculation of which charitable opportunities have the greatest ROI (in increased human welfare) at the moment. Charity evaluators like GiveWell explicitly make sure that a recommended charity has a pressing need that any additional money would address. This is their "room for funding" criteria.
> An interesting option for charities might be to offer a promise that you need your donation back because you've fallen on hard times, you can get back most or all of it. A warranty, if you will.
Another option might be to have a new type of investment account aimed at this situation, where you immediately deduct taxes from any income you add to this type of account, and you pay no capital gains taxes when you withdraw to donate to a charity. But if needed, you can pull out any of the money for yourself and pay the taxes. In practice though, I'd worry this would just become a big loophole since lots of things can qualify as a "charity".
> On an unrelated note, have you considered linking your blog with G+ comments? It's a new feature Google introduced that I find very convenient.
I linked my blog with my G+ account not long ago and thought that would do it. Looks like that's a separate feature though; I'll try to find where to set that up.