Gas station without pumps

2019 July 4

How much to give to charity

Filed under: Uncategorized — gasstationwithoutpumps @ 14:56
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I have been doing a short series of posts about charitable giving:

  • Thinking about charity started the series by giving a series of links to articles my son recommended on effective altruism.
  • Why charitable giving gave some of my initial thoughts on why people (and more particularly, why I) give to charity.
  • Readings about charity gave my reactions to each of the articles my son had recommended to me.

Today, I want to think through the amount that I will give and maybe a rough allocation for what sorts of charities I’ll give to.

The effective altruism movement has selected 10% of gross income as a good target for people to hit for feeling good about themselves—it is neither so high that everyone will feel bad because they can’t do it, nor so low that giving is meaningless symbolic gesture.  There is a pretty good explanation of why this arbitrary goal was chosen in, so I won’t repeat those arguments here.

The effective altruism movement seems to consistent mainly of young people, for whom income is the primary measure of what they can afford.  Net financial worth (assets minus liabilities) is low or even negative for many of them, so plays little or no role in their calculations.  For people like me, who have a moderately good income but have been frugal and invested much of their income for decades, the 10%-of-income rule of thumb underestimates what is reasonably affordable.  (For people with high debt load, it probably over-estimates what is affordable.)

There are several ways to handle invested wealth consistent with the 10%-of-income guideline:

  • Wait until the investment is converted to income and give away 10% of the amount withdrawn as income.  This is simple to compute, but doesn’t seem consistent with the effective-altruism principle of giving now, rather than delaying giving until later.  It also makes for some difficulties in figuring out how much to contribute if withdrawals from the investment are being made only for the purpose charitable giving.
  • Compute the change in investment value (minus contributions from income to the investment) each year and give away 10% of the growth in the investment.  This is a little messy to compute, as it requires keeping track not just of the current value of the investment, but previous values and how much was contributed to the investment from income.  Also, taking differences is essentially a high-pass filter on the investment value, and high-pass filters accentuate noise in the estimates of investment value (particularly a problem for illiquid investments like real estate, whose value is hard to estimate accurately).
  • Estimate the income that would be obtained by converting the investment into an annuity, and use 10% of that estimate as the amount to give.  This approach has the advantage of asking relatively little from the wealth of young people, but scaling up the distribution of wealth as a person ages.  Because annuity rates are set to be safely less than reasonable expectations of investment income, this method on average results in lower income estimates than growth of investment for young people, but higher estimates for old people (as principal is depleted over the duration of the annuity).

I favor the third approach, as it only requires estimating net financial worth (excluding any assets that have already been converted to annuities, which get treated as income). The resulting formula suggests giving about 0.5% of net worth each year for someone my age (0.4% for someone much younger and up to 1% for someone much older), in addition to 10% of income.

This year, because I’m forgoing 1/3 of my salary in order to take leave in the fall, 0.5% of net worth would make up a bigger share of my giving than 10% of household income—more than doubling the 10%-of-income guideline.  This means that I expect to give about five times as much this year as in previous years (when I fell short of even the 10% guideline based on income alone).

I don’t plan to simply multiply my checks by a factor of five to the same charities I’ve been giving to—if I’m giving that much more, I want to more certain that the giving is effective at meeting my goals.  I do not have a linear scale of “utilons” and the different sorts of charity are for incomparable goals, so I’ll be setting levels of giving for each type of charity based on what I think is sufficient to meet my needs for contributing to that sort of charity, not trying to maximize the value of my donations in a single dimension.

  • Global effective charities in development and health—possibly the Against Malaria Foundation that is one of Givewell’s top charities.
  • Local health and nutrition services (Planned Parenthood, Second Harvest Food Bank, …)
  • Local education (student projects at UCSC, Cabrillo College Foundation, WEST Performing Arts, … )
  • Environmental organizations (particularly ones involved in more sustainable transportation at the local, state, and national level)
  • Local cultural organizations (Museum of Art and History, Santa Cruz Shakespeare, …)
  • Social justice organizations mainly at the national level (Southern Poverty Law Center, ACLU, …)
  • Political organizations mainly at the national level (Verified Voting, PAC for a Change, …).  I probably won’t give much directly to political campaigns, as that seems to be a rather inefficient use of money (most of it seems to go towards raising more money).  There is no tax benefit to giving to politics, but tax advantage is not the primary reason for giving (and I may end up taking the standard deduction anyway, so charitable giving would have no effect on my tax deductions).

I have not decided how to balance the different sorts of giving, nor exactly what organizations to give to in each category.  This will require some calculation to figure out exactly how much we will give, then some probably long discussions as we allocate the money to different pools and different charities.

The effective-altruism approach would argue for picking whichever charity is most valuable (maximum utilons/dollar) and putting all the donations there, but that approach does not work for me—the different sorts of giving are not comparable and I’d rather give a little in several directions than a lot in one.

1 Comment »

  1. Well here’s my recommended local organization to contribute to:

    (okay, disclosure time… I’m a co-organizer and I know the topic is near to your interests :-) )

    Comment by whatisron — 2019 July 4 @ 15:08 | Reply

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