Nonprofit Chronicles

Journalism about nonprofit organizations and their impact

1005-alternate-2-440x400“Most donors don’t think their way into giving to charity.”

So writes Al Cantor, a smart guy and a veteran of the nonprofit world.

“I give from my heart – and my observation is that most other donors do the same thing,” he goes on to say. “There’s absolutely nothing wrong with that.”

Sorry, Al, but no. Something is wrong. Incentives matter. So long as people give from the heart and not the head, charities will have good reason to invest in emotional appeals — photos of smiling children or adorable puppies — and they will feel less pressure to work harder to make a meaningful, measurable and demonstrable difference in people’s lives.

To be sure, the reality is that most people today give with their hearts. But we should no more accept that than we should accept the reality of global poverty, preventable diseases, crappy schools or climate change. Indeed, one way to alleviate those problems is to encourage people give more thoughtfully.

But how?

Donor-advised funds can help.

Donor-advised funds, a.k.a. DAFs, are the fastest growing part of the charitable sector. Six of the top 10 fundraising organizations in the US in 2016 were managers of donor-advised funds, led by the charitable arms of Fidelity, Goldman Sachs, Schwab and Vanguard, according to the Chronicle of Philanthropy. Sometimes described as rest stops for charitable dollars, DAFs have major drawbacks because they enable people — typically the very wealthy — to avoid taxes, without requiring them to distribute their money for charitable purposes. (See The Undermining of American Charity, by Lewis B. Cullman and Ray Madoff.) Yet donor-advised funds have one decided advantage over conventional giving: They separate the decision of whether to give to charity from the decision of where to give.

This is why behavioral scientists think DAFs can improve the quality of giving, why the Bill & Melinda Gates Foundation has supported a DAF aimed at the masses and why Charlie Bresler and Jon Behar of The Life You Can Save see DAFs as a way to steer more money to the world’s most effective charities.

Thinking fast and slow

Piyush Tantia is co-executive director of ideas42, a nonprofit uses behavioral science to address society’s big problems. A Gates Foundation grantee, ideas42 wants to better understand how and why people give by studying their activity on employer-sponsored giving platforms as well as on DAFs.

Most often, Tantia told me, people decide to give because they are asked to by a friend or by a specific charity. In those instances, the decision of whether and where to give are inseparable. But other triggers, like news of a natural disaster or the desire to donate on Giving Tuesday or late in the calendar year to lock in a tax refund, do permit time for reflection.

The trouble is, even for those who seek out data, reliable information about charitable impact is hard to find. “People might start doing research, but they will be quickly overwhelmed,” Tantia says. Some surveys show that fewer than one in 10 donors do any research before making gifts. So what some have called the “market for good” is dysfunctional.

DAFS, which stand between donors and charities, are a practical way to deliver guidance to donors. Whether the DAF giants are willing to do so is an open question. “We try to stay neutral,” an executive with a big DAF told me last year, at a sales presentation. Several months ago, I opened a DAF at Vanguard; so far, they have offered little or nothing in the way of useful guidance. Perversely, DAF managers have no incentive to encourage their account holders to push money out the door; to the contrary, the big DAFs affiliated with commercial investment firms generate want to accumulate as many assets as possible, since those assets generate fees for shareholders of Fidelity, Goldman, Schwab or Vanguard.

One DAF manager that does stand ready to guide donors is the nonprofit Global Impact, which runs Growfund, an operator of DAFs aimed at everyday (as opposed to wealthy) donors. Scott Jackson, the chief executive of Global Impact, told me the other day that Growfund would “absolutely like to provide guidance, and good information” to our donors.

Launched in 2016, Growfund has been awarded a $625k grant from Gates. The money is helping Growfund build its platform, and make itself available to employers, giving circles, universities and nonprofits that want to run their own DAFs. Growfund requires no minimum investment, although donors using the public-facing platform must reach a balance of $100 within a year; they are charged an annualized fee of 3 percent of their first $20,000 of assets.

Growfund is very small. It’s got barely $3m in assets under management. But it has done very little marketing.

An audacious idea

At The Life You Can Save, which identifies effective charities, Charlie Bresler and Jon Behar have come up with an audacious idea that could help Growfund: Why, they ask, don’t big foundations that run programs to promote effective philanthropy — they include Gates, Raikes, Hewlett and Ford — seed DAFS for young people, and encourage them to become smarter donors? Or, for that matter, why don’t big companies make modest donations to their workers’ DAFS, either as an employee benefit or as a part of their corporate philanthropy or both.

Imagine foundations working with a college to give every graduate, or perhaps every incoming freshman, a DAF with $100 to give away. Some students could be offered guidance , while others could be left on their own. The Life You Can Save already has enjoyed success bringing Giving Games, in which groups of students with real money decide where to give it away, to more than 70 colleges and universities..

“We’d like to  get younger people thinking about giving, and giving effectively, so they can hopefully begin a lifetime of effective giving,” Behar says. Like Piyush Tantia, he’d like to encourage people to approach giving with a new mindset. “We want people ‘thinking slow,’ using system two instead of system one,” Behar says, referring to the framework popularized by psychologist Daniel Kahneman in his book, Thinking Fast and Slow.

If they chose to, foundations could nudge donors to support their favorite causes and nonprofits, which would have the effect of reducing the net cost of the program. Ideally, they’d learn how to recruit other donors to their side, and thus amplify what they do. “You’re going to have an amazingly rich data set, especially if people continue to use the platform over time,” Behar says.

Of course, similar efforts to better inform donors have been tried for years. The Learning By Giving Foundation, which is largely funded by Warren Buffett’s sister Doris, teaches students to be more effective donors. Stanford University offers a free online course called Giving 2.0. The Hewlett Foundation tried for nearly a decade to figure out how to get donors to act more intentionally before dropping its program in 2014. Meantime, GiveWell estimates that it has steered about $364m — a very impressive figure — to effective charities, even as old standbys like Charity Navigator and Guidestar try to up their game. All these are worthwhile efforts.

The fact is, some donors do think their way into giving. We just need more of them.

Update: A new CEO at Giving Compass

While wrapping up this blogpost, Giving Compass, another effort to promote thoughtful and strategic philanthropy, announced that Ben Klasky, who did a stint at the Gates Foundation after running an outdoor education center near Seattle, has been hired as its CEO. I’ve known Ben since the early 2000s, when he was executive director of Net Impact, whose board I joined a few years later.

Launched last summer by the Raikes Foundation, Giving Compass is an online platform aimed at high net worth donors. It has put together a very impressive list of partners (Bridgespan, Stanford PACs, Global Giving, Social Venture Partners, etc) and an underwhelming website (which is surprising given its roots in tech). The quality of content on Giving Compass is wildly inconsistent.

The good news is that donors are eager for its offerings. Shelly Cano Kurtz, chief marketing officer for Giving Compass, told me: “One of the biggest pieces of feedback we get is—tell us exactly what to do. They really want prescriptive assistance on how to have an impact.”

Ben Klasky said: “A lot of people have tried to do what we’re doing. This is really hard. But I think the timing is perfect. The technology’s ready. Our partners are ready. Somebody is going to figure this out.”

Let’s hope so. And not a moment too soon.

3 thoughts on “Can donor-advised funds help people give more thoughtfully?

  1. Hi Marc, thanks for another thoughtful post. I understand that DAF are a significant driver and that nonprofits need to build strategies to optimize the flow of funds through them. I also advocate making conscious decisions on steering funds into areas where they provide clear impact, but not all funds. I doubt there will ever be a time when output-driven philanthropy is not part of the equation.

    I am struggling with the idea the the DAF should be providing guidance to donors. Given the history of useless nonprofit ratings and rankings from a number of organizations, I worry that DAF will have a detrimental impact on small and mid-sized organizations that do not fit neatly into their impact model. I hate to think of the day that someone suggests that guidance provided by a DAF has a discriminatory impact.

    It is also important to remember that DAF choose which nonprofits they fund (not the donor) and that the cost of engaging DAF is disproportionally heavy for smaller nonprofits. Isn’t there a risk that DAF may unwittingly squeeze out small nonprofits that represent the service engine of the sector?

    I guess there will always be the big fish and the little fish DAF and perhaps they will diverge in how they flow through funding.

    I would appreciate your thoughts and those of other readers. Thanks! –mike

    Liked by 1 person

    1. Marc Gunther says:

      Michael, that’s an excellent point that can apply more broadly to the demands of donors for measurement of outcomes. I have been looking into an organization called the Leap Ambassador Community, and they say that even small or mid-sized nonprofits have the capacity to measure their outcomes. If that’s true, they should not be disadvantaged if/when more donors seek guidance.

      Also, I don’t think anyone but the most utilitarian donors will give 100% of their money to the most effective nonprofits. I don’t. I would hope that people would save some donations for smaller groups in their local communities, or those led by their friends.

      Finally, it would probably be a good thing if we had fewer nonprofits overall, big or small. This would be a salutary result of more giving with the head, as well as the heart.

      Like

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