There’s an epidemic of deferred philanthropy in this country.
What do I mean? Let’s imagine that your house is burning. Firefighters arrive on the scene, and they offer you three choices.
The first option is for the firefighters to do all that they can, now, to save your home.
The second option is for them to use only five percent of their available water and equipment and personnel to fight the fire. They assure you that this will allow them to shepherd their resources so that they will be able to direct a similarly insufficient effort toward future house fires a year from now, a decade from now, fifty years from now.
The third option is for the firefighters to leave the scene without ever turning on a hose – while assuring you that, at some point in the as-yet-undetermined future, they will have the resources they’ll need to put out a fire.
Obviously, you would choose option one. But when it comes to the response of charitable donors to the critical problems facing society, their answer, maddeningly enough, is very often options two and three.
Option two is to create an endowment or a foundation, which will invest the funds and parcel out money a few dollars at a time, with a focus not on solving problems and meeting needs now, but the preservation of the charitable principal to help meet that mission in the future. And option three is creating a donor-advised fund, where donors get a full charitable tax deduction when they put money in – but where there’s no requirement that the funds ever be distributed for charitable purpose.
Let me explain why, from my view, this is a problem.
I would argue – and I frequently have – that society has a compelling interest to solve immediate problems. In areas of basic human needs, we should invest in lives before they are irreversibly ruined by hunger, disease, and ignorance. Feeding a hungry child today, in the simplest example, so that she can have healthy mental and physical development is not only the compassionate thing to do, but it’s also wise public policy. That child needs to eat so she can develop into a productive citizen, someone who will work hard, pay her taxes, and, yes, raise healthy, well-fed children of her own.
Yet we defer. We lock up the funds for some future distribution. Why?
First, I think many of us conflate charitable planning with our individual financial planning. We get advice from childhood on how to manage our personal financial resources. We are all encouraged to save. (Not all of us do it, but we know we should.) How much does each of us need for retirement? As much as possible! In our personal planning, piling the resources up for the future is absolutely the right thing to do. We save our money for when we’re old and in need of nursing care. That all makes sense.
The problem is that we then rather thoughtlessly (I mean that term literally: people simply don’t think about it) apply those principles to our charitable giving, even if it means not feeding people who are hungry today. We build charitable funds for a rainy day. And we overlook the unpleasant truth that for the people who need our help now, that rainy day… is today.
Second, we are suckers for the notion of immortality. We grow up hearing about charitable foundations, we remember the endowed chairs at our alma maters, we see the names of great philanthropists on buildings, and we fall prey to the seductive notion of leaving something behind that will live on. We think that if we create an endowment or a foundation with our name on it, we will long be remembered – even though that works vastly better if your name happens to be Ford or Rockefeller or Gates, and your fortune is measured in the billions, not the thousands.
And third: there’s money to be made when charitable funds are parked in these accounts. Money that is spent on food for the hungry is quickly gone – and, I would argue, gone to the best possible cause. But money socked into a donor-advised fund or foundation or endowment can be managed indefinitely, and at a handsome fee, by your friendly Wall Street investment firm. And so there is an economic gravitational pull that encourages donors (many of whom rely upon their brokers for advice on such matters) to keep the funds invested, rather than using them to do some immediate good.
You can see this pattern clearly among the largest philanthropists. Four of the ten largest charitable donors in America in 2013 gave primarily to their own private foundations. (That is, they chose option two.) The single largest gift to charity in 2013 was by Mark Zuckerberg and his wife, Priscilla Chan, who donated a cool $1 billion to a donor-advised fund. (That’s option three.) Much of the money donated by the rest of the list went to university endowments. (Again, option two.) Yes, all of these options send money to charities providing actual services – but the funds will go out slowly, in relatively small amounts.
Some will argue that all charity is good, and that I shouldn’t carp. Others will say that there are many causes for which a measured, ongoing, long-term commitment is appropriate. But I say that more often than not investing in people today and getting ahead of social and environmental issues is a vastly better investment than plunking the funds into long-term investment accounts. The hungry child I talked about earlier is not alone: there are 49 million hungry Americans, including 16 million children. Our house, in my opinion, is on fire. But strangely enough we applaud while the firefighters drive off, waving, smiling, assuring us of their sense of commitment, and promising us that they will return on some other day.
Copyright Alan Cantor 2014. All rights reserved.