[This post was co-published in The Chronicle of Philanthropy on August 9, 2016.]
The charitable world has been buzzing recently about a new idea from the Minneapolis Foundation: The Pay It Forward Forever Fund, a uniquely structured effort to build a community endowment. Many people see the Pay It Forward Forever Fund as innovative and far-sighted, but it strikes me as precisely the wrong sort of initiative. Its founders miss the point about how philanthropy should work, and they misunderstand the needs of society and the appropriate role of a charitable endowment.
Before I share my concerns with the Pay It Forward Forever Fund, let me explain how it’s supposed to work. According to The Chronicle of Philanthropy, one hundred donors will each give $25,000, or a total of $2.5 million, to the Minneapolis Foundation, a major community foundation. The foundation will invest those funds for fifty years, without making any distributions. In fifty years, or around 2066, 80% of the fund (which the foundation estimates will then total $29 million) will go out to meet the challenges facing Minneapolis at the time, and the remaining 20% will then be reinvested for another fifty years. In 2116, 80% of the fund will again be distributed. And so on.
It’s a philanthropic perpetual motion machine, and the concept is getting a good response: so far, the Pay It Forward Forever Fund has already received commitments from 70 donors.
Those organizing the Pay It Forward Forever Fund note that if donors had done something like this in the 1930s, the community could have had a source of ready capital in the 1980s with which to combat the AIDS epidemic. That seems compelling. But it misses the point.
Common wisdom has it that building up charitable dollars for the community’s use in the future is an unalloyed good. I assert that it’s not. Certainly, the money would be nice to have in the future. The problem is that the funds won’t be put to any good use in the interim, so that societal problems – many of those very problems to be addressed in 2066 or whenever – actually grow worse. There are community needs that are crying for support now. I argue that if we attend to those problems today rather than defer them to the future, the solutions will be less expensive, the human cost will be more modest, and the consequences will be less dire.
To see what I mean, I ask you to answer the following questions:
- If we have the choice, should we:
- Spend money now on research to kill the HIV virus and end the AIDS epidemic, saving tens of millions of lives, or
- Invest that money for fifty years, and have funds at that point to respond to whatever health crisis we are then facing?
- Should we
- Spend money now to stem the tide of otherwise irreversible climate change, or
- Invest that money for fifty years, and have funds to spend on climate change once all our coastal cities are under 40 feet of water and human habitation on the planet is unalterably compromised?
- Should we
- Spend money now to educate promising young people, including future scientists, doctors, entrepreneurs, and teachers, or
- Invest that money for fifty years, educate fewer people in the meantime, and then have funds to spend on the children and grandchildren of these under-educated and overlooked folks?
If you chose the first answer to these questions, you understand what I mean. If we can cure diseases, stop environmental degradation, save endangered species, educate future leaders, feed toddlers, rehabilitate drug addicts, and house impoverished families today, that is what we absolutely must do. All of those uses of charitable money, and a thousand more, provide a vastly better return than investing in stocks, bonds, and hedge funds for a charitable payout half a century from now.
But people love this sort of scheme. Why? I think the root of the problem is that people apply inappropriate lessons from their own personal experiences with investments.
Think about how we prepare for retirement. When we’re 35 or 50, assuming we have surplus income, we work to put as much money as we can into our retirement accounts. That way, when we’re 80 we’ll be able to support ourselves. If we’re currently earning enough, our need is later, not now.
But with charitable causes, the need is now. Certainly, there will be need later, too, but there are lives and a planet to save today.
And why is the Minneapolis Foundation pushing this idea? Certainly part of their motivation is simply to promote philanthropy and the notion of investing in the community. But the Pay It Forward Forever Fund also connects them to donors (24% of whom are new to the foundation). These relationships can lead to more significant gifts, of course. I would presume, meanwhile, that the foundation will be taking a management fee from the fund each year – as will its investment managers. This care and feeding of the philanthropic machinery is a cost most people don’t think about, but the expense is noticeable when it is associated with a fund that will produce not a penny of community benefit for half a century.
We need to remember that any endowment fund, by its very nature, defers charitable impact until the future. But at least with traditional endowments, some money is distributed every year to meet current needs and to help mend the fabric of broken lives and to repair an endangered planet.
The benefits of the Pay It Forward Forever Fund are all off in the future, with absolutely nothing going to help with the problems now, or in ten years, or in thirty years. It sounds good. It has a catchy name. It resonates with donors. But it makes no sense.
Copyright Alan Cantor 2016. All rights reserved.