‘Tis the Season Part 1: For Giving Money

Back in 2006, a couple of hedge fund guys who’d made a boatload of money wanted to figure out where they could most effectively give away some of their money to others. They were amazed that nobody seemed to be evaluating which charities did the best job in maximizing their impact. So Holden Karnofsky and Elie Hassenfeld decided to apply hedge fund principles to philanthropy and created their own index to rate charities. They formed an organization called GiveWell, with the goal of determining which organizations did the greatest good for the greatest number of people for the fewest dollars.

After a series of fits and starts and hiccoughs, GiveWell can tell you these days exactly how much it costs the best charities to save a human life: $3500.

If you give $3500 to the Malaria Consortium (UK-based, focuses on preventing childhood malaria) or the Against Malaria Foundation (also UK-based, focused on mosquito netting), or to the Helen Keller International (a US foundation combatting Vitamin A deficiency, preventing blindness and malnutrition) or New Incentives (a Kenyan foundation bosting childhood vaccinations), GiveWell’s data says you can be confident your gift will save a life.

After careful analysis most of GiveWell’s top recommendations for charitable giving are in charities serving developing nations, like Burkina Faso (Photo: Malaria Consortium/Sophie Garcia)

For hedge fund operators, this was another brilliant, data-informed answer to another tricky question. Now that people knew where their gifts were most effective, they would (of course!) pour money all their money into those charities, and ignore others that had either lower ROI or couldn’t quantify their impact. GiveWell moved to Silicon Valley, and what has come to be known as  the “effective altruism” movement took root. It has continued to grow. Organizations like Open Philanthropy have since evaluated the effectiveness of charities in other areas, including artificial intelligence, global health, biosecurity, and criminal justice reform. Their goal is to “equalize marginal returns across different interventions to maximize overall impact.” I don’t know what that means, but it sounds really smart.

Once you leave Silicon Valley, though, the movement has gone basically nowhere.

It turns out that when real people are surveyed, only 3% of us say having more data and clearer results makes a difference in our charitable giving.

For the most part we want to give what we want to give to: calculations of impact have little to do with it.

So why do we give money, and where?

First a big rollup number: “Giving USA 2024,” the latest report on American giving, finds that in 2023 American individuals, foundations and corporations gave a total of $557.16 billion to charitable causes. Two-thirds of that came from individuals.

If you look at what Americans say about why we give, then look at where our money goes, you get confirmation that we are not especially motivated by data. Instead there appear to be 3 different key drivers:

Religious belief: A little more than a quarter (27%) of our donations go to support a variety of faith-based organizations. While some of this is then redistributed to other causes, we also spend a lot supporting the institutions themselves — our local houses of worship or our broader expressions of faith. It would be impossible, for example, to quantify the “return on investment” of the restoration of the Notre Dame Cathedral in Paris, but 340,000 people from 150 countries raised nearly $900 million to do that.

Belief in causes: We support other causes we believe in: we give to support improved health outcomes for others (21% of our giving); animals (another 21%);disaster relief (12%); civil rights (10%); arts and culture (10%) and the environment (9%). What those causes are for each of us tell us something about our core beliefs. As Emma Goldberg noted in a recent article:

“Charitable giving gets at what we choose to let into our hearts, what fires up our empathy and then churns it into impact. Deciding where to give means deciding what crises move us.”

Personal experience: And we support things that we often know from our own lives can make a difference to others. The broad category of human services, if you bundle up its various parts, gets 33% of our giving. Educational institutions, particularly those we attended, get 13% of our donations. Studies show that we underestimate how good giving our money away to someone we know makes us feel.

What does all that giving add up to?

 Americans feel pretty good about our generosity. The most recent big survey I could find, by a group called the Camber Collective, showed 75% of us think we give an above-average percentage of our earnings to others – a statistical impossibility. How much do we actually give? Go ahead and calculate in your head what percentage you give, then I’ll tell you what the data shows.

The median percentage we give – meaning half of us give more, and half less – may surprise you.

What percent of each $100 do we give to charity?

Spoiler alert: It’s not 10% -- the percentage that all of the world’s Abraham-based religions – Judaism, Christianity and Islam – suggest or require that we “tithe” (we should also, they say, give additional amounts to charitable causes outside of the church).

It’s not 5%.

It’s not even 1%.

The median amount of our earnings that Americans give to charity – churches, education, health care, human services, the environment, all added up -- is…. 0.4%. If we make $100, half of us give away 40 cents or less, half more than 40 cents.*

Seriously? 40 cents?

Whatever the reason we cite for giving – good data, religious faith, belief in causes, or personal experience. We need to find a way to do better than that — in this season and every season.

-              Leslie

*(the average amount a family gives away is higher than that, due to some families giving away much more than 0.4%).

PS: Next week: There are more ways to give than just money. I’ll look at the most generous countries in the world (you won’t guess more than 2 of the top 10), then try to figure out what they are doing right and what the least generous countries are doing wrong.

Notes:

If you like the approach GiveWell is taking, go to their website to check out their recommendations: https://www.givewell.org/

Background on GiveWell: https://en.wikipedia.org/wiki/GiveWell

A bit more on effective altruism and Open Philanthropy: https://en.wikipedia.org/wiki/Open_Philanthropy

Pushback on optimization of charity: https://www.nytimes.com/2024/12/07/business/charity-holiday-giving-optimized.html?smid=nytcore-ios-share&referringSource=articleShare

Giving to restore Notre Dame Cathedral: https://apnews.com/article/notre-dame-donations-restoration-7e5f17ed830dfa6f1bb3ad43aef37022

Lilly School of Philanthropy analysis of Giving USA 2024 report: https://philanthropy.indianapolis.iu.edu/news-events/news/diving-deeper/stories/giving-usa-2024.html

Tithing by religious tradition: https://en.wikipedia.org/wiki/Tithe

Camber Collective survey of our perceptions of our own giving: https://web.archive.org/web/20160804025900/http://static1.squarespace.com/static/55723b6be4b05ed81f077108/t/56957ee6df40f330ae018b81/1452637938035/$FG+2015_Final+Report_01122016.pdf