Image Credit: Christophe Vorlet
By Jason Zweig | 2:14 pm ET Dec. 4, 2015
Give from the heart, but use your head.
This past week, Facebook Chief Executive Mark Zuckerberg and his wife, Priscilla Chan, announced that over the rest of their lifetimes they would donate to charity 99% of their holdings of stock in the company, now worth $45 billion. They structured the gift carefully to preserve their control over how the money will be spent.
Americans gave $358 billion to charity last year, estimates the Giving Institute, a Chicago-based nonprofit that seeks to promote philanthropy. If you’re about to donate at year end, new ways of thinking about charity can help your gifts go farther.
You should manage your donations much like an investment portfolio, says John List, an economist at the University of Chicago who studies charitable giving. Many donors have long given from the gut, contributing to whichever charities make them feel best. But, says Prof. List, you should instead decide whether you want to spread your bets or concentrate on one or two holdings. Don’t let emotion alone shape your decisions. And, above all, do your homework before you send any money.
“If you’re an investor who cares about returns, you need to treat this sector exactly the way you would when selecting funds in your 401(k) or analyzing a company’s annual report,” says Prof. List.
“The more you treat giving as an investment that needs to show real return for your dollars,” he says, “the more you will discipline charities to measure the good they’re doing.”
Increasingly, donors are doing just that.
Ben Appen, chief executive of Magnitude Capital, a New York firm that manages about $3.8 billion in portfolios of hedge funds, gives actively to charities that test the effectiveness of their programs.
“Technology entrepreneurs and people in the financial industry are used to working with data,” he says. “They’ve wholeheartedly embraced the idea that whatever you can measure you should measure.”
Innovations for Poverty Action, for instance, conducts field experiments around the world to learn which techniques work best to lift up the poor. (Mr. Appen is a member of IPA’s board.) By applying the scientific method to economic development, organizations like IPA are contributing to a “culture of doing more of what works and less of what doesn’t work,” says Mr. Appen.
None of this means you need to close your heart.
By asking for proof that programs help, you improve the odds that your money will make a measurable difference in the problems you hope to alleviate. Think of these evidence-based gifts as the long-term core investments of your charitable portfolio.
More than 350 charities participate in the International Aid Transparency Initiative, which publishes detailed figures on the cost and effectiveness of their relief efforts. Overall, however, says Prof. List, “probably less than 10%” of charities rigorously measure whether their programs are working.
Meanwhile, you can still give some of your donations to disaster relief or other pressing causes. Think of these as the short-term, opportunistic part of your giving portfolio.
Investment-style due diligence often isn’t easy here. GiveWell is a San Francisco-based nonprofit that researches charities to determine whether their programs are effective and posts its due-diligence reviews at givewell.org.
On its website, GiveWell provides helpful sets of questions you can ask a charity before you make a donation. So, instead of just writing a check, first ask the staff of the charity questions like these: Exactly what are your programs trying to accomplish? Which published, peer-reviewed studies demonstrate that your approach is likely to succeed? What data do you collect on how satisfied your participants are with your programs? What specific measures do you use to track whether your work is succeeding? How do you follow up later with participants?
It’s also worth exploring your own behavior. Many people don’t give as much to charity as they insist they would like to, points out Dean Karlan, an economist at Yale University and president of Innovations for Poverty Action. He proposes a plan he calls Give More Tomorrow, patterned after Save More Tomorrow, a program that encourages people to increase their retirement-saving rates over time.
In June, you would pre-commit to donate 20% of your year-end bonus to charity; then, at year end, the money would automatically be swept out of your paycheck and sent to the charity. So far as Prof. Karlan knows, no employer yet offers such a plan.
But there’s no reason why you couldn’t do it yourself — especially if you give through a donor-advised fund, which allows you to set money aside for donations and reap an immediate tax deduction without having to disburse the money to specific charities until later.
When you give at the end of this year, make a written commitment to set part of next year’s bonus aside for charity. By earmarking it to come out of a future windfall, you make the gift painless now — and you get to savor the warm glow of giving all over again when next year rolls around.
Source: The Wall Street Journal