Why Philanthropists Should Act Just Like Investors When Deciding How to Give


Giving to charity is a time-honored way of helping the disenfranchised. It's also good for a write off. But in order to accomplish anything, philanthropists need to act just like investors. They need a clear set of goals and a clear understanding of the types of investments as well as investment vehicles available.

Since the benchmark for successful giving can't be measured by accounting profits, donors need to know what they want to see for their money. Do they want to put food in the bellies of the homeless? Do they want to give disenfranchised a proper shot at life? These are important questions that should shape the way a donor invests.

There's a difference between giving a person a fish and teaching that person to fish for themselves. Both can be legitimate goals, but the answer forces donors to focus on different kinds of charities. 

The Ronald McDonald House, for example, provides a residence for families who have had to travel in order to seek treatment for a critically ill child. This organization serves as a type of safety net for families suddenly struck with misfortune.

Food Banks also fit the safety net model as part of a last resort food distribution system for those unable to meet basic needs. 

The Boys and Girls Club of America seeks to empower youths to grow into self-sufficient members of society through mentoring and education.  

The first two represent stopgap measures while the third is meant to produce "dividends" in the futures of individual children. 

Once donors know what they want to accomplish, they have some research to do. Philanthropists should look for organizations with transparent finances, organizational structures, a clear set of goals, and research results examining their own effectiveness readily available. 

If extensive research seems daunting, looking to established Charitable Trusts like the Gates Foundation to see who they themselves give to can be a good way to pick out a potential recipient.

Still not sure about your research skills? Want to give but only have pocket change?

Crowd funding sites like Indiegogo and Kickstarter are also great ways to give. The advantage to these outlets is that they let donors invest in individual projects with specific, stated goals.

Feel like contributing that pocket change to a mural project for underprivileged urban youths, but not sure about contributing to an organization's general fund? That's no problem with crowd funding.

There's a distinct advantage to having a vibrant philanthropic sector versus government welfare programs alone. Just as individuals in the market are making use of dispersed knowledge, so is the mass of individuals seeking to give. 

When the multitude of social investors each seek out the most impactful projects, properly research them, and monitor the results-not implausible given that such individuals are already motivated enough to give in the first place-there's a much more effective deployment of resources. 

That's not to say government should never provide for welfare spending, but that as one gets higher in government and farther away from the population in need of help, the same logic that makes centralized management of the economy comes into play for charity as well.

Like most things, successful charity requires work. Just like managing a 401(k), once social investors know where they want to go they have to understand what the right portfolio is to get them there. 

And just as investing for retirement can bring great rewards at the end if one's life, so too can investing in philanthropy. At the very end of life, it may be the latter instead of the former we remember as most rewarding.