People sometimes ask us whether they should give now, or save their money and give (including the interest/returns they accrue on their money) later. We don’t think there’s a clear answer. Here are the major issues as I see them, when thinking about my own giving. Bottom line – my favored strategy at the moment is to give regularly (a set percentage of my income each year).
On the flip side, our growth and learning depends on growing our money moved. Giving to our top charities today helps this happen.
None of the best giving opportunities I see today are guaranteed to be good opportunities next year. In some cases (particularly VillageReach in 2010), giving now may be crucial to an organization’s development. Even when this isn’t the case, there’s always the possibility that the organization will improve its fundraising – or make a contact with a large funder – in the future, affecting its room for more funding.
Economic growth, increased giving, and smarter giving may mean that giving opportunities are worse in the far future. We’ve written before about the idea that the more good is being done by others, the fewer opportunities you have to do a lot of good with your own giving. We hope to see a day where no one is so poor/underserved that you can save their life by giving few thousand dollars.
If I save, I earn interest/returns on my money; but if I give, the good I accomplish may “earn interest” too. Ideally, donations give people more power over their lives, which in turn leaves them better positioned to help others (in their community or elsewhere). We take seriously the idea that most problems may be better addressed by local communities than by outside aid; we focus our outside aid on the problems we feel it is best-suited to address.
In general, I would guess that the conceptual “interest rate on empowering people” is higher than the interest rate you earn when you save. This is because the same basic mechanism underlies both (having more resources today can allow a person to generate more resources for the future), but savers get paid directly for providing resources, while donors don’t (thus, there is likely more “unmet need” for donations than for savings). Given today’s interest rates, it seems particularly likely that the “interest rate on empowering people” is higher than the interest rate you earn when you save.
I think the same applies, to a lesser extent, to donors who are relying on GiveWell’s research rather than doing their own – giving now may help you think through what questions to check GiveWell’s answers to, and consider how you feel about relying on GiveWell’s research vs. going in another direction.
If I postponed substantial giving for a long time, I’d worry that I was giving myself an excuse not to give at all.
Giving regularly and predictably is more helpful to the group(s) I’m supporting. In general, people tend to give the same donations each year,* and I believe that charities often plan around this fact. (We certainly do, both when considering our operating expenses and when considering our money moved.) Therefore, if you give irregularly (particularly if your donations go down over time), you are sending an inaccurate message to a charity and may be negatively affecting its ability to plan, unless you take specific efforts to communicate your plans (and even when you do so, this may create extra hassle for the charity).
Bottom line. In general, my preferred approach is to give relatively regularly; I think there are substantial disadvantages (discussed above) to deviating from this approach in either direction (giving a lot now and only a little later, or giving a little now with the intent of giving a lot later).
At some point I may spot a giving opportunity that seems like a true outlier, and focus my giving on that opportunity rather than giving regularly over time. To give one example of this – when we started GiveWell, we believed that our startup funds were critical, and thus we encouraged donors to give a large amount immediately even if it meant abstaining from giving for the next year or two. Several did exactly this, and I think in hindsight it was the right decision (their 2007 gifts were in fact critical for our getting off the ground, in a way that they wouldn’t have been a year later). So I do think there can be good reason to “over-give” now and hold back later, or to save now and give more later. But right now I don’t see any compelling argument for deviating from “give a set percentage of my income each year.”
*Our experience suggests this; the Money for Good study suggests it as well (see page 16).
What is known as the Keeler-Cretin paradox is relevant here. Money could be spent now on some health intervention that would save lives. If the money were instead invested, assuming it had an expected return above the inflation rate, more lives could be saved if it were invested for a year and spent then. However, next year, the same argument could be made. And so on forever. This would lead to never spending on the intervention at all.
The above post speaks to my tendency of letting the perfect be the enemy of the good.
Ron, this doesn’t seem to be a paradox in this case, if you accept my argument that saving lives/empowering people earns a return of its own.
I’m a bit confused. GiveWell’s recommendation changes each year due to new information. If we follow your advice, this results in unpredictable donations from a charity’s point of view. How does that square with making predictable donations every year?
Brian – good question. When you’re regularly relying on GiveWell, I think you can think of yourself as part of a larger funding pool. As a “major donor,” GiveWell is able to set clear expectations with charities to help them plan (in a way that many donors operating independently couldn’t). However, in order to do this well – and for our own purposes – GiveWell itself finds it helpful to have some ability to predict our money moved. Obviously, the benefits of a surprise on the upside (a bigger donation than expected) outweigh the costs, but holding constant the amount one gives over time, more regular donations are more helpful for our planning.
There are really three “growth” rates here and they should completely dominate our thinking on the issue. First is the interest rate on saving. Second is the rate at which giving becomes more (or less) effective. Most of your points concern whether it is positive of negative. Third is the “social interest rate” that you talk about. So if you normalize “effectiveness” today to 1 and use these growth rates you’d get a measure of effectiveness over time and you’d want to find the global maximum. That makes sense.
The problem is that it completely contradicts your conclusion of donating in regular intervals. If you don’t think it’s better to save, that’s fine so donate now. But since not saving implies that its worse to donate in the future than it is to donate now, shouldn’t you take out a massive loan and donate all that money today and then use the money you would have donated in the future to pay off the loan?
Steve, I agree that all three factors matter, and all are addressed in the post, but I disagree that they are the only relevant factors. We also discuss the benefits of using giving today as a tool for learning more about how to give effectively in the future. That’s at the heart of the case for spreading one’s giving out. Your comment doesn’t address this factor.
Steve, the other thing I would note is that you can rarely borrow at the same rate that you can save. So if the social return on charity was more than the savings rate but less than the borrowing rate, then the optimal thing to do is to give as much as you have now but no more.
You do bring up a possible consumer arbitrage strategy, though: Borrow to the hilt, give the money away, and then declare bankruptcy and discharge the debt. Especially effective for those close to death, who could skip the bankruptcy part.
excellent post, hopefully the need for giving will be lower in 30 years
and thus lower the discount rate. . .
sorry, higher discount rate — not sure if I’m talking about rates or inflation (or real rates), but thanks for article, never thought about opportunities for ulility enhancement over time
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