CHARITABLE CONTRIBUTIONS-As Principal of Cornerstone Investment Associates, I do blog posts that are associated with my website, and the content below covers Charitable Contributions. Cornerstone reviewed a wide range of publications and economic research related to charitable giving to compile broad comments and recommendations. The effort is to provide evidence-based information to highlight charitable contributions that make the biggest impact. At the same time, it is critical to recognize that some charitable giving can be ineffective, and some giving can even be detrimental.
Comments are listed as follows:
At a high level, the United States is a generous country that provided $390 billion to charitable causes in 2016 according to the Giving USA Center on Philanthropy at Indiana University. This national giving level is roughly comparable to the total output of goods and services in Minnesota. Individuals provided 72.3%, and foundations, bequests and corporate gave the remainder. Religion received the largest amount at 31.5% and education was second at 15.3%. Interestingly, Americans give three times as much to charity as is spent on gambling and 10 times as much as is spent on professional sports.
Support your Local Church and Local Missions: First, I believe it is important to support your local church and Local Missions. America is experiencing a rapid decline in the traditional family and there is a corresponding increase in social problems. A large body of research shows low-income single-parent families are increasingly economically marginalized. For example, the Joint Economic Committee-a bipartisan group of U.S. House and Senate members-reported this year that one-third of all kids are being raised by a single mom or dad, or by no parent at all. The report also showed that the rate of births to unmarried women has climbed from 10% in 1970 to 40% today. The New York Times reported in July 2017 “that between 2003 and 2012 the number of babies born dependent on drugs (via their addicted moms) grew nearly five-fold”.
Children raised by single parents and/or in a drug-dependent environment are often in low income categories, and this results in lower educational achievement and increased drug usage and crime. This is clearly a complex issue, and a comprehensive solution is beyond the scope of this blog. Nevertheless, charitable giving to the local church can provide financial and spiritual support and can help to maintain the social fabric.
Tom Stinson, Professor Emeritus of Applied Economics at the University of Minnesota, has completed extensive research showing the importance of early-childhood education and the resulting social benefit when kids are ready for kindergarten. There is a continuing need, however, for support beyond kindergarten.
Charitable giving for local outreach and missions is also beneficial, especially where you know the people and you can see the outcomes. There is no substitute for your first-hand/direct observation.
Charitable contributions to education and health care comprised 15.3% and 8.5% respectively of total 2016 giving. Although this blog does not have definitive research, analysis or evidence related to education and health care giving, it seems that the effectiveness of these two categories would be highly beneficial. Giving to human services, the environment and the arts are other categories that will be monitored, and there will be a follow-up in the future.
Cornerstone has seen less effectiveness from some larger nonprofit charities. One needs to be mindful of scandals and fraud going back in time with United Way, televangelists, etc.
Contributions supporting people in foreign countries often have the biggest bang for the buck.
There is often a tendency to give at the local or national level, but there is also a strong rationale for charitable contributions outside the US. This foreign giving provides sustainable essentials like water and sanitation, food, healthcare, education, and economic opportunities to attack the root causes of poverty for real and lasting change. Academic studies show significant economic evidence that foreign giving is particularly impactful in helping people in faraway lands meet their basic needs.
For example, Dean Karlan, Economics professor at Yale University shows that a dollar spent in Uganda has 10 times more impact than a dollar spent locally. He uses randomized trials to determine what social policies work. He finds that a person in East Africa could be provided safe drinking water through chorine dispensers for a year at a cost of $1.98.
Give Directly documented the impacts of cash transfers in Uganda using a randomized controlled trial and their procedures were reviewed recently in the November 2016 Quarterly Journal of Economics. They found people used the money to start small businesses, increase the size of their herds, pay for education, repair their homes. Furthermore, there was no evidence of the purchase of “temptation goods” like alcohol and cigarettes. Ultimately, these cash gifts keep kids nourished, healthy, and going to school, it encourages work, investment and entrepreneurialism. It needs to be said that for the United States, there is evidence that cash-based welfare programs undercut the benefits they create for children by discouraging parents from working.”
Child Sponsorship:
Child sponsorship is another high-impact outcome. It is estimated that there are approximately nine million children sponsored worldwide at more than $5 billion per year. Bruce Wydick, Economics professor at University of San Francisco, completed a study related to child sponsorship funding in Uganda, Guatemala, the Philippines, India, Kenya and Bolivia. Paul Glewwe, Economics professor at University of Minnesota was also involved. This research demonstrated positive outcomes related to better educational outcomes, including a greater liklihood to complete a university education, to obtain a white-collar job, and to grow up to become community leaders and church leaders. This research was reviewed and approved by researchers at Stanford, USC, Washington and Cornell. Child sponsorship is so effective because it expands children’s views about their own possibilities and allows them to achieve their God-given potential. Child sponsorship also connects donors with real people and some 5 million children are now sponsored by World Vision and Compassion International.
Mission Trips:
Short-term mission trips are increasingly common, but the effectiveness of spending $5 billion annually is less clear. The exposure to poverty from these short-term trips is often described as life-changing by those participating in short-term mission trips. Participants also often say they receive more than they give. Unfortunately, there is an argument that these short-term trips often produce little lasting results. This is particularly true when the trips displace local labor. Free food and clothing distribution may encourage handout lines while diminishing the dignity of the poor while increasing their dependency. Never do for the poor what they can do for themselves and limit one-way giving to emergencies.
There are many critics of global institutions like the World Bank and government aid programs due to a record of ineffective assistance and corruption by recipient country governments. It certainly looks like private charitable contributions have achieved greater results. Nevertheless, some helpful criteria are as follows:
-Outside resources should build on existing resources, and never substitute for existing capacities and potential. Don’t negate the reality that recipients need to be involved in planning and implementation.
-It is best to be partners where everyone has “skin in the game”.
-Leadership needs to come locally, not by an “Expert” living in the US.
-Avoid a patronizing approach where individuals from afar make decisions for the poor instead of empowering the poor to make the best decisions for themselves.
-There is a need for continuing objective research, especially related to longer-term outcomes.
Charitable Rating Sources and Books:
There are a number of sources that help identify key factors including fund-raising costs and overhead costs. Some good ones are as follows:
https://www.charitynavigator.org/
There are also some highly-acclaimed books that deal with giving that is ineffective or even detrimental. The best intentions can do harm “despite meaning well” with many negative unintended consequences. For example, research shows that small amounts of cash given to the poor can promote negative behaviors while large transfers can cause real transformation. Good sources are as follows:
“When Helping Hurts: How to Alleviate Poverty without Hurting the Poor…and Yourself”-Economic college professors Steve Corbett and Brian Fikkert.
“Toxic Charity”-Robert D. Lupton.
Stewardship:
Stewardship contributions by Christians and other faith communities constitute a large proportion of charitable giving and they generate substantial positive outcomes. In many regards these outcomes are real but immeasurable. A 2012 study by George Barna of people who give to the church showed that 5% tithed 10% of their income. Hopefully, charitable giving will increase and provide even greater benefits.
See More. https://cornerstoneinvestmentsllc.com/stewardship/
Giving & Happiness:
Much of this blog is focused on charitable giving to achieve positive outcomes. It needs to be said that there are personal reasons to give as well. There is a high correlation between charitable giving and happiness. Giving that results in stories of great transformation can provide immense joy. By contrast, psychologists report that self-centeredness and self-absorption tend to lead to stress behaviors, isolation and unhappiness.
Some Take-Aways:
-Support your church and local missions. You are maintaining an institution that imparts moral values that contribute to social stability.
-Go with what you know and can directly observe on a local basis.
-Consider global missions. There is potential for a bigger bang for the buck, especially for child sponsorship.
-Utilize web-based rating services to help ensure effectiveness.
-Don’t let “When Helping Hurts” and “Toxic Charity” discourage your giving, but use these resources to redirect the focus.
-Recognize the immense benefit from “investments” in charitable giving.
This is a first shot at a complex topic. I will continue to monitor charitable outcomes, I will incorporate all replies and feedback, and I will follow-up in the future.
Let me know what you think.
Jeff Johnson
Date: January 13, 2018
Cornerstone Investments 