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.


Lee

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.

Steve

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.

S.V.

So "you" eradicated smallpox?

Joe Brown

No, silly. "You" did.

Alex

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.

Lawrence

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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Tse

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?

KevinM

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?

Joe Brown

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

Justin

Of course one would like administrative and marketing costs should be minimized, but you seem to object to their very existence. Are you aware of a biotech company that doesn't also have these costs? A charity's product is the perceived "good work" it does and its costs of doing business are overhead and marketing. Surely you can shop around for one that achieves the right bang for the buck without excluding every single large charity.

Even if your $20 donation is cut in half to buy a $10 bednet that saves a child from malaria, a rational donor could make the case they've achieved more "good per dollar" than buying a family that lost their home a $20 worth of McDonald's hamburgers.

Justin

I find it extremely hard to believe that if the costs for a drug to get by the FDA are reduced, we will see a drop in drug prices.

The wonders of the free market seem to be suspiciously absent in drug prices.

Paula Lovell

Not necessarily true. Some small charities have high administrative costs and questionable practices. Your best bet is to check them out at www.give.org which is run by the Better Business Bureau. Personally, I also avoid large charities that have VERY well compensated CEO's. The head of the Gulf Coast United Way makes more than the Mayor of Houston, for example.

Desiree Vargas Wrigley

Considering that tomorrow is World Give Day (http://www.WorldGiveDay.com), I'd rather not agree with James's post. True, small-scale donors are the under-appreciated backbone of American philanthropy and the impact of our individual gifts may be marginal by comparison to large grants or government funded initiatives. BUT, collectively our donations as small-scale donors make up the majority of giving in this country.

I hope people take this post with a grain of salt and continue to give to the causes, projects, and people they care about. American philanthropy is part of our national heritage, it's part of what connects us to those less fortunate, and it reminds to be grateful for basic luxuries like medicine, green spaces, and access to education.

Please use this post to find a more meaningful way to give...I strongly recommend finding a crowdfunding site you like and starting there ;-)

Desiree
President & Co-Founder,
GiveForward.com

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Gary

Your advice is wise because it uses both the head and the heart together -- not either alone or in opposition.

James

I agree on the marketing costs, particularly when it's marketing that flies against what are supposed to be the core values of the organization. For instance, I used to contribute a bit to a well-known environmental organization, but stopped because they kept sending a stream of begging letters (and still do, though I haven't responded in several years) in non-recyclable window envelopes, containing sheets of return-address labels that 1) Got my name wrong - I'm not "Mr."; 2) Got my address wrong - I live in the state of Nevada, not this mythical "NV"; and 3) Which I wouldn't have a use for even if they were correct, 'cause I do all my correspondence on-line.

So I figure my misguided little contribution has in fact caused more waste & environmental degradation than it has prevented.

Greg

This started out so agreeable ... how did it turn into trickle-down economics and global warming denial by the end?

Ryan

I personally rely on http://www.givewell.org to identify the most worthy charities (so I can "do the most good" with money that I want to donate every month). The folks there have spent thousands of hours looking at EFFECTIVENESS of countless charities (not just looking at their financial reports but actually at their methodologies, measurement approaches, results, etc). Only 2% of the charities that they've inspected have earned their recommendation (i.e. they agree with James Altucher that many charity organizations are worthless, or worse).

Psychohistorian

This guy is writing about how to donate to charity in a selfish a way as possible. He's not concerned about actual effect, he's concerned principally with how good it makes him feel about himself - an arguably legitimate goal, but you should disclose that your motives are almost purely selfish. Indeed, this seems to run directly contrary to all of the rational, anti-bias things I associate with Freakonomics, and I'm surprised this guy keeps getting to post here.

If you insist on accomplishing something *relative to Bill Gates,* your money would better be spent on a book by Nassim Taleb. Or cocaine. You're not going to accomplish anything relative to Gates. But if I could save a life by donating $500 to kids in Africa, or I could save a local family modest inconvenience by buying them a hotel room, the fact that Bill Gates has saved lots and lots more African kids should not factor in to this objective calculus. I might not feel as "original," and I might not get to think quite as vividly about what I've done, but if my goal is helping people who aren't me, that doesn't really matter. Similarly, charities doing big things with high overhead are going to be better than charities doing little things with low overhead - even if you feel your money is "wasted."

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Devin

Yeah, sorry, but you lost all credibility with me as soon as I read "However, there is a lot of mixed evidence of global warming", even though I agree with your initial premise.

There is no debate as to whether or not not the planet is getting warmer (higher highs? Check. Higher lows? Check. Ice caps melting? Check. Atmospheric and ocean temperatures rising? Check). The "debate" is about whether or not that warming has been largely caused by humans or by natural causes, and the scientific evidence is overwhelmingly in favour of anthropomorphic climate change. The "debate" is driven by people who "ask questions", make up facts, or ignorantly misinterpret science on the climate-denial side.

Tahadden

Which would do more good for the groverment to give $1000.00 to each American to give to the charities of their choice, ot for Congress to spend $300,000,000,000 on good causes?
I would pick the $1000.00 each method .