This is a contentious issue people tend to fall to one side of only, like the epic debate over whether Predator is a great movie, or the greatest movie of all time. I ask that what follows be read with a thoughtful, curious mind and the realization that arguing over the best ways to practice philanthropy is inherently ridiculous—if an act helps people and makes you feel better about yourself, who am I to argue its merits? I can argue that there may be better, more effective means however; this is what I seek to outline in the following five reasons why I personally don’t donate money to charity.
1. I already donate money via the taxes I pay. Non-profit organizations in the United States are subsidized in two primary ways by the taxes we pay. The first way is through funding, i.e. grants, food stamps, welfare checks, etc. The second way is inherent in the fact that they do not pay taxes and so don’t finance their own operations directly, thus necessitating the former reason. I am not a hard-lined, tea-party sign-misspelling blowhard on social programs; they have a purpose and have eradicated great evil from our lives. The small pox vaccine was developed through this type of government funding, and millions of people eat everyday with food tax dollars pay for. All good things. Yet through taxation I get no choice in where the money goes or what it is used for, and for every small pox vaccine there are millions of wasted dollars spent on bureaucratic nonsense, corruption, laundering, and other things Tony Soprano approve of. You might say this is a reason to donate directly to a charity, but it’s the charities carrying out the bureaucratic nonsense, corruption and laundering. I guess what I am saying is I don’t trust charities to spend my money wisely. I choose not to participate in the Catch-22 anymore than I have to, and I have to pay taxes.
2. I will not donate to the CEOs new summer house. That is to say, I will not donate to pay for lofty salaries and wasteful “business” spending within charities. A commonly used example in making this point is the American Cancer Society, where 9.8 cents of every dollar is spent on administrative costs, not curing cancer. If you don’t think that is so bad, consider that the ACS also spends 21.8 cents of every dollar donated on marketing costs, otherwise known as the pursuit of more donations. So only 68% of your dollars goes towards cancer research. I should mention that the ACS is a highly respected, rated and transparent organization; many charities are far worse. To further this point, I would like to add that the CEO of United Way makes 1 million annually, the CEO of American Red Cross makes over $500 thousand plus expenses annually, and the CEO of Partners Healthcare systems makes a staggering $3 million annually. All that money comes from donations.
3. The other two options you have with your money benefit society more. When we earn a dollar we have three options, excluding taking a bath in it. We can spend it, invest/save it, and donate it. Spending and investing is better overall for society. Spending money stimulates the economy and creates more taxation, which as I explained above is the way in which society as a whole donates to charitable causes. There is a macroeconomic theory called the multiplier effect, which outlines how one dollar spent creates 10 dollars of economic stimulation. Investing is a more direct way to be charitable, pending on what you are investing in. If you think you are being charitable because you invest in Apple, you’re an asshole. But if you invest in the health sector, you are giving your money to companies trying to cure, albeit for profit, terrible diseases. I would wage that 9 out of 10 social breakthroughs stem from the private sector, and when you invest your money in companies positioned to provide social benefit you are being charitable. Check the post script below for even more ways investing can equate charity. Note that I think investment is better on the whole than consumerism.
4. Charities invest your money anyway. This one obviously relates to point #3 above. A charity’s goal in fund raising is to stay solvent, and hence the 20% or so of your donations that are spent on marketing expenses. Often times they raise more than they need for the fiscal year, and invest the majority of the remainder (and pay bonuses to top executives). They then spend the interest on operations, which is good, but it’s a bit dishonest as most people who donate want to believe their money goes to the cause and not a mutual fund.
5. It’s a shallow way of giving back to society. American’s are a hands-off people when it comes to charity. We prefer another person does it, which possibly explains why we are a people who donate more money than any other country to charity by far, but do not have such a lead when it comes to donating our time (and for those that do: Thank You). I think donating money to charity is a cop out of sorts, it’s intellectually lazy. I think we all have our own entrepreneurial instincts we can put to use to better society, and if you lack those, perhaps your parenting or coaching instincts can help shape those in need within your community into better, harder working people. That benefits society more than writing a check, I promise you.
I do not think that donating money to charity is a bad thing, and I do not think all consumerism is a good thing (as the beautiful people who reads Snarkfinance regularly would know). I have donated before, and may find a time or two when I feel it is appropriate to do so again. If you are donating to charity, I urge you to consider the above five points but if you decide I am an overly capitalistic jerk on this one that is fine. 68 cents of every dollar minus whatever is invested is better than no money at all, and our society certainly doesn’t tax enough to negate the need for charity in the first place. So give however it is you best see fit, but do your diligence and think about the most effective way to contribute to the causes you believe in.
Investing your money can equate charity for the reasons I explain in point #3, but also in the following two ways:
- An investment loss equates a tax write off in the same way a charitable donation of cash does. If I donate $5 grand to charity, I can write that off during tax season. If I invest $5 grand in a Chron’s disease cure start up, and it flops, I lose all my money but am able to write off the $5 grand loss. There are details I will leave it up to you to explore, but in the end it’s very similar. The key difference beyond the tax write-off issue is that if the Chron’s disease cure start up hits it big, I make a lot of money in addition to helping fund a cure for Chron’s.
- Investing in your own start up ultimately benefits society more than a donation. Beyond the facts that your start up would pay taxes which helps fund social programs, you could donate portions of your company’s funds to charity (different than a personal donation because the amounts company’s donate are typically far, far larger than individual donations), invest far larger amounts in companies you believe will help the world (and in this case, you may be able to directly fund the start up through partial ownership, not common stock), or pending the nature of your company the work itself may benefit society. Who picks up more trash, the group who organizes a series of volunteer day-long pickups in a needy community, or the guy who figures out a way to service that community through the founding of a trash company?
 It is also important to note that publically traded companies must operate in a far more transparent atmosphere than non-profits. If you don’t like how a company is spending its money, treating its employees, whatever… you can sell your stock and put that money to work elsewhere.