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Doing Good Better with Your Money

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This blog has always focused on saving more, investing smarter, and retiring sooner. It’s about living your financial life efficiently and effectively so that you reach your goals, and reach them sooner.

But there is more to life than getting rich. Accumulating assets for their sake alone is a dead end. Having money lets us connect with wider purposes that make our lives meaningful. So, a key part of retiring early, or retiring at all, is the opportunity to better align your life with the activities that are most meaningful to you.

And part of saving and investing effectively, in addition to achieving financial security for yourself, is the opportunity to give back to good causes you believe in. But why abandon financial efficiency just because you’re trying to do good? After a lifetime of careful saving and investing, why would you want to put time or money into any cause blindly, without being certain it was effective?

But that’s what many of us, including myself, have done for years. And yet what is our motivation? Are we just trying to make ourselves feel better or worthier by checking off the charitable giving “task,” or are we genuinely interested in doing the most good with our dollars? If the latter, wouldn’t it make sense to measure and evaluate the results of our giving?

Doing Good Better

Though I have tried to donate regularly throughout my life, I have generally chosen causes based on my personal preferences and interests, not realizing there might be ways to measure their effectiveness. But that’s ironic because in other avenues of life — business, home, recreation — my frugal nature has always been finely tuned to getting what I pay for. And yet, until recently, it never occurred to me to adopt a similar hard-nosed financial approach to measuring the impact of charitable giving.

Then, last month, I discovered and read Doing Good Better, which addresses many of these concerns directly. The book is written by Will MacAskill, a young Oxford-trained philosopher and co-founder of the Centre for Effective Altruism.

Will Rogers once said that “Philosophers are people who kick up a lot of dust and then complain they can’t see.” But MacAskill seems to be cut from different cloth. He is brilliant (when he joined the faculty of Oxford University age 28, he was the youngest associate professor of philosophy in the world), but communicates easily in lay terms, and seems intent on making a practical difference in the world. By the age of 30 he has spun off a half-dozen charitable organizations. Couple that kind of mind with the mathematical and economic chops to analyze serious social problems, and you get a fascinating book.

Effective altruism is a scientific approach to doing good. It looks at problems that can’t be solved by the markets or governments and asks where our donations can go the furthest. It tends to focus on issues like the scale, tractability, and neglectedness of potential causes — how many people could be helped, how easy it is to help them, and are other resources already going into that area. Then, when looking at specific charities, it asks questions like “How cost effective is each program area?”, “How robust is the evidence?”, “How well is each program implemented?”, and “Does the charity need additional funds?”

This is a marked difference from the common practice of evaluating charities based on our personal attraction to the cause, or based on their administrative overhead — neither of which say anything about their effectiveness. For years, I thought I was doing more good by contributing to charities with low administrative costs. That might be better than no metric at all. But, when you think about it, it makes little sense. What would it matter if a charity only spends 1% of their income on administration and fund raising, if the other 99% is wasted on ineffective solutions to low-priority problems?

Wealth Disparity

If you’re looking for places where your charitable dollars will go farther, fact is that poor countries top the list. MacAskill points out that the extreme wealth disparities between the developed and developing world mean that your dollars are far more likely to make a difference in the developing world. His numbers drive the point home:

“If you earn more than $52,000 per year, then, speaking globally, you are the 1 percent….Even someone living below the US poverty line, earning just $11,000 per year, is still richer than 85 percent of the people in the world.”

“According to the most rigorous estimates, the cost to save a life in the developing world is about $3,400. In comparison, government departments in the United States will pay for infrastructure to improve safety if doing so costs less than about $7 million per life saved.”

Wow. You can save a life in the developing world by spending a few thousand dollars. In the developed world it might cost millions. That’s because most of the cheap humanitarian problems have already been solved here.

Making a Difference

But “personal fit” matters too in your giving. And MacAskill addresses that. You may be more motivated to give to certain areas, or have certain experience or skills that make your giving more effective. That’s all good. But we might want to temper our emotions with some data on how effective our contributions will be. Even if it’s personally meaningful, what’s the point of donating in areas where we can’t do much good?

There is a stock market analogy: Just because you like and use a certain brand of computer or car, doesn’t necessarily make that company a good investment.

Time or money? If you want to take high-impact personal actions to help the world, you can fly less, or eat less meat. You can also volunteer.

However, it’s not a slam-dunk that volunteering time is more impactful than donating money. MacAskill argues that giving money instead of time is not a cop-out. In fact it may be better in many situations. Doing Good Better confirms that, in many cases, your money given to an effective charity is more valuable than your unskilled time.

According to the Wall Street Journal, “many people assume that it’s more valuable to donate their time than to take the “easy way out” and just donate money, even though the truth is that for many charities, a financial donation actually does more good than “just” a single person’s volunteer time.”

Charitable Funds

But even if we are committed to donating, and doing good more effectively, we can be overwhelmed by the options. Most of us are busy with career, family, or other activities and can’t make a research project out of evaluating charities for their effectiveness, even if we had the technical skills to do so. Fortunately, there are solutions that make it much easier for us….

Many people, if they thought about it, would probably just want to maximize their giving for humanitarian causes. GiveWell is a nonprofit, founded by former hedge fund employees, focused on analyzing and publishing outstanding giving opportunities. They conduct research to assess how much good a program accomplishes in terms of human lives saved or improved. Rather than rate every charity, they try to identify the handful that are doing the most good every year. They publish a list of top charities, and update it twice annually. By virtue of their criteria they tend to focus on the developing world, and especially health issues. With a few clicks, you can donate to your selection of their top charities, or let GiveWell allocate your money at their discretion.

If your concern is animal welfare, Animal Charity Evaluators plays a similar role to GiveWell, but for animal quality of life. While there is substantial giving already for animal welfare, not all of that money goes to the causes that help the most animals. If you are interested in the very most effective charities working in this area you can see their list of top charities here.

Beyond human and animal welfare, many are also concerned about the environment. My top environmental organization for giving over many years has been the Nature Conservancy. I am partial to the idea of preserving land. I see open land as a natural “savings account” for future generations, and a natural buffer for the impact we humans are having on the planet. I like that the Nature Conservancy generally avoids political activity and instead works with people from all walks in an effort to preserve land and water in ways that don’t hinder the economy or hold back humans. They aren’t perfect, and their effectiveness, while good, may not have been measured as accurately as the humanitarian organizations above. But the Nature Conservancy has the human and financial resources to make a difference: over six decades they’ve protected more than 119 million acres of land.

Beyond the Nature Conservancy, a newer environmental charity is on my radar now thanks to Doing Good Better: Cool Earth. This group works alongside rainforest communities to slow deforestation. They help villages set up a bank account and community association to manage funds that will improve their lives, without devastating nearby forest. Cool Earth has been designated one of the most cost-effective organizations working on environmental issues, and they do it by helping people first.

How to Give

Now that we’ve looked at effective causes, let’s talk for a minute about the financial mechanisms for giving effectively.

I generally donate to each organization annually. I keep a list of charities that I’ve decided to support, and as I receive solicitations from them and others throughout the year, I mark my donations off on a list, trying to smooth out my charitable cash flow to stay within my monthly budget. Then, at the end of the calendar year, I’ll review my overall giving and often give more to select charities, depending on how our investments have done that year.

But that’s not necessarily the most efficient way to give. I’ve heard of at least one couple that budgets all their annual giving in advance, and writes all the checks at one sitting. Most of the charities themselves would prefer that you give monthly with an automated bank account or credit card donation. They appreciate the steady income for their own budgeting, and they don’t want you to forget about them. But, for me, that’s too many transactions to track.

If you own appreciated long-term (more than 1 year) stocks, you can maximize your giving by donating stocks, rather than selling them first. If you donate the stocks rather than cash, you can deduct the fair market value, and not pay capital gains tax. And the charity receives that full market value. If you were to sell the stocks to generate cash to give, both you and the charity would lose the amount of the capital gains tax to the government. Just note, with the new tax law the value of all deductions has diminished given the increased standard deduction.

Just how do you go about donating shares of a stock or mutual fund? When I went to the Account Servicing menu item for my Schwab account — which is probably representative of other financial custodians — and clicked on “Forms”, the very first form listed was “Charitable Gift Donation.” In it you list your account information and the names and number of shares of any stock/bond/mutual fund you want to sell and donate. You will need to supply the account number, contact information, and DTC number of the receiving charitable institution, then sign and fax the form. (Note it’s best not to leave this exercise to the very end of the year, as transfers can require several weeks.)

Finally, let’s talk about donor-advised funds. These are “mini” charitable foundations that anybody can create at one of many sponsoring organizations. They have some slight financial advantage to the donor in that they decouple your tax deduction for a charitable donation from the timing decision of which charity should get the money and when, and they can make it easier to donate property.

Beyond that, donor advised funds have serious negatives in my opinion. First, they complicate your life. You want to do good but instead you’re creating this intermediate financial vehicle that requires managing itself. Second, the statistics on how much of that money ever makes it through to charities is not good. Turns out that people (and the financial advisors collecting management fees for these funds) get attached to the idea of having charitable assets under their control. And, they never get around to actually donating them! According to The Atlantic only about 20% of the money in donor-advised funds is disbursed annually. In my opinion, if you want to do good and you’re not a billionaire, don’t get fancy, just give the money away.

Enough

As I’ve often recounted here, I deliberately left my corporate career at age 50, even though I was enjoying a six-digit salary and a range of advancement opportunities. Like John Bogle, I had “enough.” I had enough money to be financially independent, and I’d had enough of working on somebody else’s priorities, in somebody else’s business, constructed to suite their purposes.

I founded this blog in 2011 to help people with their personal finances, and to generate some modest part-time income. In the nearly seven years since, the blog has grown to more success than I could have imagined. But in the past year, I’ve begun to reconsider my role here. My 60’s are on the horizon and, as I grow older, I want to ensure this blog is serving a higher purpose.

Wealth is relative, I guess. Almost everybody thinks they could use more. But, as an expert in this domain, I can tell you that once you have a million or two under your belt, your main financial concern is your own appetite. I’m sometimes frustrated by the extremely wealthy people who contact me wanting free advice for optimizing their taxes, investments, or retirement income. I’ve never understood why, once people have enough, they obsess about getting even more.

So, I’ve recently cut back on my reader mail. Yes, I like to help people. But I’m getting more selective. I think the greater need is to help younger people earlier in their careers get out of debt, live frugally, and take control of their financial lives. And to encourage those later in their careers or in retirement, who are financially comfortable, to be generous with their time and money.

With Chris on board here now, the blog is taking a turn in those directions. And I’m freer to focus on the most meaningful subjects. I’ll still be writing about saving, investing, and retiring at times. But I’ll also branch out into topics more explicitly focused on giving back. This article has been a down payment on that commitment….

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Comments

  1. Excellent and informative post, Darrow! This is an often-overlooked aspect of responsible personal finance, in my opinion. I share with you the premise that if we so carefully optimize our levels of saving, spending, and tax liability, why don’t we do the same when it comes to giving?

    I’ve always attempted to do what I could to ensure our giving was making as large of a difference as possible, but I echo the sentiment you expressed regarding most people simply don’t have that kind of time. GiveWell is a great resource. I also discovered a charity by the way of charity: water after having the opportunity to hear its founder, Scott Hamilton, speak at a leadership conference several years ago. They work to help bring clean water to villages in undeveloped nations and have a surprising amount of data available which indicates this is the largest return on investment in terms of increasing quality of life.

    $32,400 USD is all it takes to be within the world’s top 1% by income. 43% of us Americans are already at that level or above. And the average income for the American adult is only $1,301 from joining the club. It makes sense why giving would go further in undeveloped nations.

  2. As always, your blog is a mindful exploration of subjects that deserve consideration. Your comments on what is ‘enough’, efficient giving, and methods of helping others opened my eyes more. Thank you for your work to help us (the readership) know more of the big picture.

  3. I have a bookkeeping question. I just donated appreciated stock to a charity. The stock came out of the account on 3/22/18. The charity has yet to register the stock gift. I think the value of the gift is determined at the giving rather than the acceptance date. What say you?

  4. There are so many points covered in this article. Not sure what to address.

    I, too think a lot about what is enough. I left my corporate job to retire at 40 or at least that is what I told my former employer and friends at work. I had saved enough to give me time to reflect and decide what would be next. I had enough to give me freedom to try different types of work, including working at a non-profit part-time at a drastically reduced salary. Which for various reasons only lasted a few years. However, it gave me an appreciation for non-profits.

    Ironically, I am back in the non-profit world at part-time schedule while I continue to work with individuals and couples who need personal management help (aks money coaching). While my services are not free, I know that I am giving the gift of financial education that will pay dividends for years to come for my clients. Not everyone can learn some skills on their own by reading books or blog.

    I financially support many charitable organizations. Some I give periodically throughout the year. Most, I give twice a year. I do also believe in giving locally. Even in wealthy areas of the US, there are people who are without food, clothing, and shelter. Some are the working poor, others find themselves in unexpected financial straights.

    While I haven’t written much about charitable giving, I did write an article about giving charitable gifts cards as gifts. https://www.alexandritegroup.com/giving-experiences-not-things-holidays/

  5. You would think as I turn the second base of age 50, I would know more of these various options. Geesh….

    I am also reminded you never stop learning. And learn I did today.

    Thanks for opening my eyes on a number of really important aspects of charitable giving, particularly with an emphasis on Global Giving. I spent a number of years traveling to and from India on business and that country and people are near and dear to my heart. I need to reflect that in our charitable donations this year.

  6. After moving to TN eight years ago from a wealthier northern state, I realized that many other areas of this country have a larger proportion of people who are suffering. So while agree that our $ could potentially go further overseas, I truly believe in the adage that ‘charity begins at home”. That being said, I do all my giving with charities that are local to my community, where I can see and hear of their activities much more easily (as opposed to countries in some parts of the world where theft and government looting of charitable organizations is a way of life). My charities tend to lean towards both mens and womens shelters for cash and personal products, as well as Habitat for Humanity and Good Samaritans for needed products, clothing and the like. But regardless of your personal preference, for those of us who have been given much, much is to be expected. Great post, my friend.

  7. Robert Brennan says:

    While my wife and I have spent many hours each year compiling our list of charitable donations to add to our other deductions, the new tax law has given us a great opportunity to simplify the task and achieve greater results.
    This year after we turned 70-1/2, we had our IRA trustee, Vanguard, generate our gifts as QCD checks (Qualified Charitable Deductions). This allowed us to bypass the effect on our AGI and maximize the amount we could give to charitable causes. The doubling of the standard deduction and having no appreciable mortgage deduction means we couldn’t make effective use of the gifts as charitable after tax deductions.

    Robert & Linda

  8. This is interesting but relates only to donations. From the title I thought it might also relate to using your investments to do good, eg ethical investment, environmental investment, impact investing etc. Why not try to put that money to good purpose as well as one’s charitable giving? This no longer seems to be necessarily associated with getting a lower return – although passive investments (with lower charges) of this type are scarce. Perhaps this is a topic for another article?

  9. Darrow, Nice article as always ! Watch out the “Digital Divide” which is further going to create demand for charitable giving.

  10. I’m glad to see you highlight charitable giving, Darrow. Anyone who finds themselves in a position to retire early is also in a position to be generous with their dollars. The concept of effective altruism is intriguing to me. MMM touched on the topic a while back. I’ve generally donated most of our dollars locally where I’m most likely to see a difference, but I can see how people need much more in third world countries, and out dollars can go much further there. Thank you for highlighting those facts — the book you mentioned is one of a few on the topic that are on my future reading list. I have read Bogle’s Enough and thought it was great.

    Now, I have to comment on your misguided statements about donor advised funds. It’s clear that you’ve never used one. If you had, you’d realize how contradictory it to say a DAF complicates your life when it addresses several of the complications you describe when you donate in a more traditional fashion.

    With a DAF, you can make one large donation and dole the money out over years. You can easily automate the donations to occur monthly, quarterly, or at any interval you wish. You only need to record and report the one contribution to the fund as an itemized deduction in the year in which you made it. You can then donate hundreds or thousands of times without having to save any receipts or record the donations on your 1040.

    With the new standard deduction of $24,000 per couple, even fewer families won’t be itemizing most years. If you normally donate $5,000 a year, the charities will get exactly $5,000 if you’re not itemizing. But if you can donate 5 years’ worth by donating $40,000 to $50,000 in appreciated assets, you’ll likely get $15,000 to $20,000 back in taxes, costing you $25,000 (and eliminating those capital gains). That’s an extra $15,000 to $25,000 for charity at no additional cost to you, depending on your marginal tax rate.

    Regarding the fact that “only” 20% of the DAF money is granted to charities, what number would you expect from funds that you accurately describe as mini charitable foundations? Do you know endowments or foundations that donate 20% annually? They’d be depleted in under a decade. It makes a lot of sense for an early retiree to build up a DAF in the higher earning years to donate over the decades when in a lower marginal tax bracket.

    And the typical DAF fees of 0.6% plus expense ratios are not much different than the tax drag on a taxable account (particularly during working years), which is where this money would typically live if not donated to the DAF. The account doesn’t require anything in the way of ongoing management. Pick a fund or a portfolio. Set it and forget it.

    I made it a goal to build up our DAF balance to 10% of our desired retirement nest egg, and I’ve done that. It’s forced savings for the sole purpose of giving, and it’s so easy to give from it from both a logistical and psychological standpoint. Now that I’ve made the lump sum investment(s), it costs me nothing to give from the account, and the actual process of making a grant takes a couple minutes the first time. Subsequent grants to the same charity takes seconds.

    In my opinion, donor advised funds are a great tool that allow people to part with their own money more easily and generously, and I’ve got a list of 20 other personal finance bloggers who have also started a DAF and shared their perspectives (at the end of this post: https://www.physicianonfire.com/quarter-million-in-daf/).

    With Fidelity Charitable, you need $5,000 to open one and can make grants of a minimum of $50. I highly recommend it.

    Best,
    -PoF

  11. Great perspective. You’ve done well. Now go do good. My favorite retirement bloggers eventually have all come to this same decision. It’s bittersweet to watch them fade away. But it’s the right thing to follow your heart and use the lessons you’ve been sharing with all of us.