Closing the Divide

(Note: This entry is cross-posted in the Stanford Social Innovation Review.)

In this election year we’ve heard plenty about the 47%, the 1% and the 99%. The expanding wealth gap has become a major election issue, as it should be. Decisions in the coming years about taxes, access to education, jobs and workers’ rights are intertwined with reversing the growing wealth imbalance.

Undoubtedly the most effective approach to narrowing the wealth gap is political. But is there a role that individual donors can play? There certainly is, but it requires a break from traditional philanthropy.

Let’s imagine a wealthy donor – we’ll call her Mary – who wants very much to help kids from low-income backgrounds have educational opportunities.

Mary remembers her own scholarship to a prestigious university and how that paved the way for her successful career. She wants to give back. And, rather naturally, she puts in a call to the development department at her alma mater. The major gifts officer urges Mary to establish a $1 million endowment in her name at the university. That will spill off about $45,000 a year in scholarship funds, which will underwrite the cost of one student to attend the school each year.

While Mary likes the idea of having her name immortalized at the university she cares so much about, she also decides to consider other, less-traditional options. A million dollars is a lot of money. And helping one student at a time isn’t exactly going to scale, she realizes. She looks for ways to direct those funds to provide real opportunity for more young people.

Mary decides to focus less on the end provider – the university – and focus more on the students and their families and communities.

One solution she comes up with: supporting early childhood programs. Instead of popping a million dollars into the endowment of her alma mater, Mary could give $100,000 a year for ten years to a high-quality nonprofit childcare center to provide scholarships for children from low-wealth families. Instead of the impact being deferred (as all endowment gifts are) and benefitting only one student at a time, as is the case at the university, her gift could enable dozens of children each year to get a quality learning experience at a critical point in their lives. And an annual gift of $100,000 would be a game-changer at nearly any childcare center. (By contrast, a million-dollar gift to a major university barely causes a ripple.)

Then Mary learns that there are now hundreds of organizations around the country providing matched savings accounts – as demonstrated by the more-than-1,200 practitioners at the recent Assets Learning Conference in Washington, DC, sponsored by the Corporation for Enterprise Development (CFED). These programs encourage families with low incomes to save for education, or the purchase of a home, or a business – all assets that will help provide them with long-term economic traction. And each of these programs provides some sort of a match as an incentive to the families.

Mary learns that students with savings accounts are many times more likely to enter college – even if the total in the account is relatively small. Mary imagines the impact if, working through one of these organizations, she were use her million dollars to provide a $2,500 match to 400 students, thereby allowing a broad swath of kids from low-wealth families to attend college. (They may go to a community college, of course, and not an Ivy League school, so a little bit of investment will go a long way.)

And Mary finds out that there’s now there’s a new way for donors to contribute to matched savings programs through a project called the 1:1 Fund. Though still in its early stages, the 1:1 Fund plans to offer donors the chance to invest in the future of American kids in much the way Kiva has democratized investing in microfinance around the world.

Donors like Mary are drawn by nostalgia and convention to consider creating endowed funds at their universities and prep schools. But if they stop to think about it, they will realize that they can affect several hundred times more students from low-wealth families by giving to early childhood or matched savings programs. With the ever-widening wealth gap, we as a society need to break out of the traditional philanthropic mold. I’m hoping that in the coming years dozens, then hundreds, then tens of thousands of donors change course, jettison prestige, and opt for impact.

Copyright Alan Cantor 2012. All rights reserved.

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