Ten Reasons Why I Would Never Donate to a Major Charity (How to Be a Superhero, Part 2)

This is a cross-post from James Altucher‘s blog Altucher Confidential. His previous appearances on the Freakonomics blog can be found here.

“Giving to Charity” is another myth we fervently uphold as part of the Great American Religion — just like “own a home” or “send your kids to college.” It’s time we stop blindly believing in mythology. I’m not saying don’t give. I’m not saying don’t be spiritual or don’t be good. But do it with thoughtfulness, with true spirit, with a true desire to help. More harm than good is done when you blindly throw money at most charities.

When the first version of this article came out (“How to Be a Superhero…or Why I Would Never Donate to a Major Charity”), I got a lot of criticism. So I’m going to answer some of the criticisms/questions that arose and I look forward to any comments or further suggestions.

1)   Be a Microcharity, part 2. First off, my recommendation in the first article still holds. What I like to do is directly donate to what I call “micro-causes.” Specifically, pick up the local paper and see who needs help right now, where a small amount of money can immediately make a significant difference in someone’s life.

In other words, be directly, personally involved with your cause. Then you know how the dollars are being used, you know face to face who is being helped, you feel good, you solve an immediate problem, you save a life. You go from being an average guy to a superhero. Please check out the above article, as I describe the best ways to do this. For the next nine reasons I give specifics as to why I avoid the major charities.

2)  I already donate to thousands of major charities. When you pay taxes, a good portion of the U.S. budget goes toward funding philanthropic causes. I have no control over that money. Nor is that money always correctly allocated. So much corruption (not in our government but in others) has siphoned off that money. Nor do I always approve of the charities being donated to but I have no choice over it. And that’s fine. I can use No. 1 above to balance that off. I do have to say, though, that some of those charities the government has funded have worked. We eradicated smallpox throughout the world for instance. I feel pretty good about that. So if I can use my dollars to make more money for myself, and then pay more taxes, I don’t think it’s such a bad thing.

 

While cancer rates are rising, it's harder than ever to get drugs through the FDA

3)  I don’t like paying administrative overhead. For every $1 someone donates to the American Cancer Society, 9.8 cents goes to administrative costs. I’m happy that people have jobs and are hired and I have nothing against those that work for the ACS. But I bet if I used that money to start my own company (or, again, directly help people through my own micro-charity), then more people would have jobs as a result, and more people would get their problems solved. And the ACS is probably one of the best-run major charities out there.

4) I don’t like paying marketing costs. I didn’t realize this until I looked it up. But for every dollar I give to the American Cancer Society, 21.8 cents goes toward furthering their marketing efforts. I thought I just gave them money. Now they need more money already? So only 70 cents of my dollar goes to actually helping the families with cancer.

5) There are better ways to cure cancer. First off, it seems like I’m picking on the American Cancer Society. But this is the No. 1 killer in the U.S. so I might as well focus on it a little bit. And it’s not just cancer. What I’m about to say applies to Alzheimer’s, heart disease, and every other major disease. Companies cure cancer. Scientists with new ideas for drugs team up with businessmen, start little companies, get approximately $200 million to $1 billion in funding, then develop their drugs, put them through a bunch of different phrases through the FDA, and then finally if the drugs are good, they get bought by a bigger company that’s better at selling the drug.

That’s how cancer gets cured. That’s how every disease in the world finds a cure now. So if you really want to help cure a major disease, put money into a biotech mutual fund, which funds small biotech companies. These companies are at the frontier of major biotech research. The other thing is to lobby the government to reduce the FDA’s stringent standards on drugs. A drug costs up to $200 million or more to get through the FDA. The only way companies can recoup that cost is by charging enormous amounts for drugs. This is part of the reason why health care and insurance are so expensive. Drugs for prostate cancer, for instance, cost up to $93,000 a month because of the billion or so it cost to get through the FDA.

6) It’s hard to uncover charity fraud. The recent 60 Minutes expose on Greg Mortenson’s charity for building schools in Afghanistan is a good example. I don’t know if this is a fraud or not. We may never know the full story. I don’t want to know. But if it takes 60 Minutes to uncover something, using the best reporters out there, then how am I going to possibly be able to find out what’s fraud and what’s not.

7) Charities are businesses. Businesses have agendas. The agenda of a charity is to convince you of a cause so that you feel concerned enough about it to donate. Example: there are many charities that try to do something about global warming. However, there is a lot of mixed evidence of global warming. If people stopped donating to these charities, even if all the evidence suggests that their cause is meaningless, a lot of jobs would be lost. A lot of lives (the families of the people holding those jobs) would be hurt. That’s sad. But it’s not your responsibility to help them. Many charities have causes that are unclear at best. So best to avoid them.

8) High unemployment. With every dollar that I don’t save, I have two choices: donate it to a charity or spend it. A charity is obligated to spend only a very small amount per year on actual charitable activity. The rest goes into funds that generate interest. They spend off of the interest. When I spend a dollar in the economy, it instantly has its effect on jobs, growth, etc, particularly because of the “multiplier effect” (e.g. I buy a sandwich in a deli, the deli guy uses the dollar to buy a chair, the chair guy buys some books, the books guy buys a house, etc.). So each dollar spent is the equivalent of $10 spent on the economy. That has an immediate effect on the quality of our lives: lower unemployment, greater demand for products, homes etc.

9) Smart allocators of capital are on the case. Bill Gates and Warren Buffet are a 1,000 times better than I am at researching charitable cases, allocating their capital, investing correctly the leftover funds, etc. My $100 (or $1,000, or $10,000) is not going to make a dent compared to their $100 billion. Let them handle the big problems. With the micro-charity idea, I can personally make a great difference to people who Bill Gates will never even hear about.

10) Give in every way you can possibly give. Spend your time and efforts on proper giving. Too often, giving to charities is a way to pass on the personal giving responsibility to someone else. “I gave at the office.” In addition to No. 1, please check out my post “Give and You Will Receive.”  It’s one of my first posts here and I truly believe and try to live by it. Giving of ourselves is the most important thing we can do in our lives, and the more you give, the more benefits you will receive. So don’t give simply to receive those benefits; give and then enjoy the benefits that will shower down. But the more personal the giving is, the greater the benefit.

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  1. Lee says:

    Your missing a fairly major and obvious point; the existence of global poverty. $10 could save a life through any number of proven global health intervention, even given a cut for overheads, marketing, corruption, whatever. I’d like to see how $10 could buy anything close to the same impact in the US. So unless you happen to live in a poor country, major charities may well be your best option for making a real impact. I think you are actually thinking more about yourself and what you get out of giving than what the recipient gets from your giving.

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    • MeanOnSunday says:

      The point still applies. It sounds great to contribute to digging a well in some African village and providing water for hundreds of people, but if 2 years later it’s polluted and the pump is broken because there’s no infrastructure, did your money really achieve anything?

      Hot debate. What do you think? Thumb up 15 Thumb down 11
      • Syed Karim says:

        “but if 2 years later it’s polluted and the pump is broken because there’s no infrastructure, did your money really achieve anything?”
        –Yes, it did. Your money alleviated two years of disease and suffering that is associated with not having access to clean water.

        I believe it’s unrealistic to expect that charitable contributions will have an infinite impact; the goal should be to have measurable impact.

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  2. Steve says:

    Maybe I’m being an idiot today, but doesn’t the chart with the caption “While cancer rates are rising, it’s harder than ever to get drugs through the FDA” actually show cancer rates falling. Or, more accurately, not tell us anything about cancer rates at all. Doesn’t it show each generation having a lower rate of cancer deaths than the previous generation? It also shows that older people are more likely to die from cancer than younger people, but that is hardly news.

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    • m.m says:

      First thing I noticed, too. Looks like giving to the ACS is working after all!

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  3. S.V. says:

    So “you” eradicated smallpox?

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  4. Alex says:

    I think a great deal of research is funded by government and charity that is not and would never be funded by private business otherwise. Startup companies don’t do basic scientific research, they do drug development which is fundamentally different. Saying you won’t make a difference without starting a $200 million company is just false and promotes just doing nothing.

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  5. Lawrence says:

    Point #8 (or rather, point # cool-smiley emoticon) is not factually correct. There are some charities that maintain an endowment and use the earnings from that endowment to cover all of their operating costs, but this is not a common model. Most of those sorts of charities are referred to as “Foundations”, though that word doesn’t carry any legal meaning in most states. Many Foundations are themselves grant-making organizations; you give them money, they pool your money with the donations of others, invest it, and use the earnings to award grants to other organizations.

    However, there are many, many organizations that do not maintain an endowment, that would be recipients of grants from Foundations as well as individual donations, and basically spend every dollar that they bring in to provide services. Sites like Guidestar can tell you how much money most U.S. organizations spend on services, overhead, marketing, etc, vs how much they bring in.

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  6. Tse says:

    Item #5… investing in a biotech mutual doesn’t provide “funds” for the small biotech companies. Perhaps you mean donating to a small biotech company?

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    • Wehhtam says:

      So mutuals that specialize in small biotechs don’t take the money and invest it in small biotechs? What do they do with it?

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      • Tse says:

        Yes, a biotech mutual fund takes your money and invest it in small biotech companies. That’s different than a donation to fund biotech research though. Unless the mutual fund is taking part in an IPO, the small biotech company doesn’t see a cent of the money you put in the mutual fund.

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      • John says:

        To help fund biotech/medical device companies, you should put your money into an angel fund or become an angel investor (investors who provide seed money for very early stage companies). A directory of such funds is here: http://www.angelblog.net/Angel_Funds.html. Or you could donate to a business plan competition that focuses on medical innovation which would truly be a micro-charity donation and help get fledgling entrepreneurs off the ground. In addition, if you know anything about business(even accounting,finance, etc is important)/medicine/science you could be a mentor and donate your time in a meaningful way.

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  7. KevinM says:

    I get the multiplier effect when you buy a Biber fanmag or whatever. Are you suggesting that dollars lose their multiplier effect when they go through a charitable organization?

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  8. Joe Brown says:

    Don’t forget to boycott Susan G. Komen, who spends a million dollars a year suing other charities.

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