Several people I know, all under 30, want to do good. They want to do so much good, in fact, that they donate a large fraction of their income to charity.
This is almost always a bad idea. It’s admirable, but it’s the wrong decision. If you’re under 30, don’t give away large amounts of money, and send this blog post to anyone who does. The reason is simple:
Wealth almost entirely belongs to the old. The median 60-year-old has 45 times (yes, forty-five times) the net worth of the median 30-year-old. 99% – not 80%, not even 95%, but ninety-nine percent – of American billionaires are over 40.
Old people, of course, have more time to accumulate wealth. They’ve also had more time to learn skills, make friends, earn degrees, gain experiences… everything that gives someone higher earning potential. They also have almost all the political power. There are a hundred US Senators, and not a single one is under 40. You can’t even be President until you’re 35. It’s not surprising, then, that old people utterly dominate lists of the wealthy.
What does that imply? Any money a 25-year-old can give – even if they donate half their income – is chump change. It’s a single drop in a large bucket, compared to what they can donate later in life, when they’re older and much much richer. It doesn’t matter. At all. It means nothing.
What does matter is that 25-year-old’s human capital and social capital. The job they have, the skills they know, the connections they make… those determine, when they’re 60, whether they’re worth $1 million or $10 million or $100 million. If they donate half their wealth to charity, their human and social capital now determine whether that donation will be tiny or huge.
So, don’t donate that spare cash. Invest it in yourself. Donate a small amount, to keep yourself in the habit, and use all of the rest to make yourself a better, smarter, friendlier, and more capable person. Buy books. Take classes. Get a better job. Move to a better city. Throw parties. Get a gym membership. Go out dancing. Travel places you haven’t been. Build things you haven’t built. Start a business. Learn a craft. Do anything that levels you up. It not only feels good, it’s the virtuous thing to do.
EDIT: To all the new visitors from Instapundit – Rational Conspiracy welcomes you! However, please do read Money: The Unit Of Caring and Purchase Fuzzies and Utilons Separately before commenting, as these posts address many common misconceptions about charity. Also, if you’d like to know more about me and what I do, check out my medical company, Panacea Research.
You’re leaving out the part where old people almost uniformly support causes that are 40 years out of date. For many important things, the cognitively available pool of funding is mostly young people.
This is pretty hard to believe. What evidence supports it?
I’ll restrain myself from a number of temptations and simply say Givewell, since it’s most commensurate with other charities. Do they have any old supporters yet?
Leaving aside that GiveWell hasn’t raised significant money for itself (its annual budget is only ~$300K, as reported on its form 990), the answer is yes (http://www.givewell.org/about/people):
“Greg Jensen is co-Chief Investment Officer at a major hedge fund, the former supervisor of both Holden and Elie, and one of our project’s major financial supporters.” (Greg Jensen is 38)
“Tom Rutledge (Chair) is in the Structured Credit Group at Magnetar Capital, an Evanston, Illinois-based alternative investment manager. During his career, he has also worked in capital markets businesses at JPMorgan, Deutsche Bank, and Merrill Lynch.” (Age not in his bio, but he graduated Amherst in 1983, so we can safely assume he’s in his fifties)
“Tim Ogden is the former Chief Knowledge Officer of Geneva Global, a philanthropic consulting firm devoted to results-oriented grantmaking in the poorest regions of the world. He currently is an Executive Partner at Sona Partners and writes for Philanthropy Action, an online philanthropic research publication.” (Age 39)
One could argue that late 30s doesn’t count as “old”, but I referred to “young” as under 30 (which most of the people I know wanting to donate large amounts are). In addition, “Operating costs are not funded by the individual donors GiveWell seeks to direct but rather by private donor groups including The William and Flora Hewlett Foundation” (from GW’s Wikipedia article). The president of the Hewlett Foundation (Larry Kramer) is in his 50s, and several of their executive staff are even older.
What do you mean by “forty years out of date”? It’s not like charity is a type of software and there’s a new version every six months. The vast majority of charities have changed quite little since several decades ago. Poor people still need to be fed, vaccines still need to be distributed, people still need clean water, etc. etc.
Of course, almost all old people don’t analyze the effectiveness of charities before donating, but almost all young people don’t do so either. The fraction of people of all ages who do so is epsilon. (The readers of this blog are much more likely to do so than average, but if you’re going to take that into account, you also have to take into account the fact that in several decades we’ll almost certainly have much better systems for analyzing charitable effectiveness *and* much better systems for training people to be rational, which would cancel out some or all or more than all of O/g decline due to age.)
Is there a single cause, in the history of ever, which has raised a majority of a significant amount of money ($1M+) from those under 30? The first thing that comes to mind as a candidate is Occupy Wall Street, but I happen to *know* several of the leaders of Occupy, and even *they* say that by far their largest offers of financial support were from old rich people with houses they didn’t need.
I think what eliezeryudkowsky means is that the charities supported by the older crowd are simply not fashionable enough for his/her taste.
The obvious implication is that eliezer knows better what to do with their money than they do.
I think what eliezer means is that the giving of the ‘old’ are not fashionable to his taste.
He/she appears to know better than they how to spend their money.
I think it’s a good point, and one I, as a 21-year old donor, would do well to heed. However, I’m unconvinced that this self-investment actually requires me to change my spending at all.
Buy books? I get them all from my library or online.
Take classes? I already go to college, and there are tons of free classes online.
Get a better job? That takes skill and social capital, not money.
Move to a better city? Not relevant while I’m in college.
Throw parties? How would that actually develop me compared to cheaper opportunities?
Get a gym membership? You can do all the exercise you need for free.
Go out dancing? How would that actually develop me compared to cheaper opportunities?
Travel places I haven’t been? How would that actually develop me compared to some other opportunities?
Build things you haven’t built. …That’s vague enough to not cost any money.
Start a business? That’s often not wise for many people, and is really a general argument for investing more over donating.
Learn a craft? That can be done for pretty much free.
I do think my donations are “chump change” (~$1300 to date), and could easily be made up by, for example, somehow shifting to a $1 million income over a $200k one. But I also think that’s easier said than done, no matter the investment level. Thus, I still think the money I spend on donating, which doesn’t come at really any self-investment expense, is still more than sitting on it as additional savings.
I mean, I say this not to be all defensive, I do (at least believe that I) want to be as successful as I can be for the world. Feel free to file this under “missing the point” and enlighten me further. 🙂
Buy books? I get them all from my library or online. — Good!
Take classes? I already go to college, and there are tons of free classes online. — As long as you’re learning something new… good!
Get a better job? That takes skill and social capital, not money. — Usually true but sometimes you have to spend money to acquire ‘social capital’. It’s hard to do that unless you have the means to travel and look good.
Move to a better city? Not relevant while I’m in college. — Point taken.
Throw parties? How would that actually develop me compared to cheaper opportunities? — This is one way to accumulate said ‘social capital’ and yes it costs money.
Get a gym membership? You can do all the exercise you need for free. — Point taken.
Go out dancing? How would that actually develop me compared to cheaper opportunities? — Again with the social capital thing. Also takes money.
Travel places I haven’t been? How would that actually develop me compared to some other opportunities? — Again with the social capital thing (and also again with the ‘costing money’ thing)… although this also has a secondary purpose: To meet people from a totally different culture and pick up new ideas along the way. This in and of itself can be very valuable.
Start a business? That’s often not wise for many people, and is really a general argument for investing more over donating. — Author’s point precisely!
Learn a craft? That can be done for pretty much free. –for some crafts you can do that. For other crafts you can’t–It’s hard to learn wood working if you don’t have enough money to buy said wood or tools for such.
You can also buy quite a bit in terms of tools, resources, party goods, or travel for $1300.
I think you’re overstating your case here. I’ve noticed that the older I get, the more selfish I get. Who’s to say that future-me will still care about the stuff that present-me cares about?
Also, you don’t compare the discount rates of the relevant charitable cause and the rate of interest on personal self-improvement. Your advice makes sense if (a) there are high-interest-rate ways to invest ALL of the relevant young person’s earnings in themselves and (b) the best available charities all have very low discount rates, i.e. if given the choice, they’d *prefer* for the young person to invest money in themselves rather than have the money donated directly.
In fact, if your reasoning was correct, we’d expect to see charities take money from their budgets and give it to young people who were interested in their causes to invest in themselves with so they could make more money when they were old and consequentially give money to charity. I don’t know of any major charities doing anything like that. The Singularity Institute kind of did that for a while years ago (with their visiting fellows program), but they’ve stopped now, and from conversations with Louie Helm it seems that they think it was largely a bad use of funds. 20 Under 20 is vaguely like this, but Thiel isn’t vetting applicants for charitable inclinations so it doesn’t count.
I’m all for investing in oneself, but I think most of the opportunities to do that have time as their primary cost, not money, so if you’re an altruistic young urban professional, I think it makes sense to donate a substantial fraction of your income.
Becoming more altruistic with time makes sense from an expected utility perspective. Assuming we have finite lifespans, then at the beginning of your life, you’ll want to spent most of your money on yourself so you can enjoy the rewards. Towards the end, your capacity to enjoy things decreases from old age, and you also have less time left to enjoy the world in, so it makes more sense to donate. (The ultimate extremes are infants, who are totally selfish, and the about-to-die, who have no reason not to donate everything.)
Marshall Brain claims, based on personal experience and biology, that people get less self-centered as they age (http://bygpub.com/books/tg2rw/gif/chap2fig2.gif), and empirically we do find that almost all famous philanthropists are old. So, at the very least, we’d need more data before claiming people get more selfish with age.
There will, of course, be conflicts between present-self and future-self, but why assume that the present-self knows *more*? The standard wisdom is that the future-self can make better decisions, since it has more data and more resources and more skill of pretty much every sort. That’s why everyone advises teenagers to not run off and get married and have kids and do drugs and get tattoos and etc. etc. Their future selves will regret it, and most of us would endorse their future selves over their present selves.
Why assume that most charities have high discount rates? One should expect a charity’s discount rate to be roughly that of the overall economy (not much in the US nowadays), while one should expect a young person’s discount rate to be that of the economy *plus* that caused by them being young (ie, in the future, they will earn more because of an improved economy *and* because of being older). Hence, the second rate should always (on average) be strictly greater than the first.
Your scheme would only work if there was a way to buy some fraction of a person’s future income – in real life, even if the person did donate more, he’d almost certainly donate to some *other* charity. There are millions of charities, so even if charity X forgoes a donation of $10 to help person Y donate $1,000 in future earnings, their expected fraction of that $1,000 is epsilon. The argument that people *would* already be doing this assumes efficient markets, while we *know* from GiveWell that the donation market is comically inefficient.
Time and money are somewhat fungible in the short term, and much more fungible in the long term (taking a job with fewer/more hours, in exchange for worse/better pay).
Did some research on age and altruism. This 1973 study (http://www.amsciepub.com/doi/abs/10.2466/pr0.19188.8.131.527) seems to have found that adults were more likely to return lost letters than teens or college students. These studies (http://link.springer.com/article/10.2307%2F2061685?LI=true#page-2, http://ajot.aotapress.net/content/41/6/379.short) also seem to indicate that the old are reasonably altruistic. I don’t think the famous philanthropists bit says much though, ’cause wealth is a prerequisite for philanthropy, and as you say, the old seem wealthier. It might be interesting to look at those who *found* charities or who are “social entrepreneurs” as well.
I don’t see why we should expect a typical charity to have a discount rate similar to the interest rate in the overall economy unless many charities seem indifferent between investing donations and spending them. Most charities seem to spend donations on their programs, not invest them. Arguably, if the economy is bad, that’s an even better reason for charities to spend their money (more pain -> more low-hanging fruit from giving people stuff).
Otherwise, good points.
Forty years hence the world is most likely a richer place and so your charitable contributions will deliver either more marginal or less cost efficient aid. So you will need your return on investment to be great enough that, in the future, the real return is the same. But since you’re targeting welfare, not the accumulation of stuff itself, that may be quite difficult. Improvements in happiness are difficult above relatively low incomes; forty years hence, there may be no large, easily-targeted populations below this. Moreover, as wealth climbs, poverty, especially extreme poverty, becomes more dependent on non-material factors like mental illness; while these can be targeted, the treatment will deliver less welfare per dollar.
Your argument is, I think, one which fortunately started falling apart 20 years ago. The collapse of the Soviet Union released a lot of the world from systematized poverty, whether from communist regimes themselves or from military competition with rebels. So while holding back, knowing that you’d be richer and conditions either no better or worse, made sense over the life of Warren Buffett (for example), it is less likely to make sense over the life of a current twenty year-old (thankfully).
The collapse of the Soviet Union had many effects both good and bad, but it did not make the formerly Soviet people wealthier – per capita GDP fell by half from 1991 to 1997. And of course, the Soviets didn’t control Africa, Southern Asia, etc.
Poverty rates in the US have remained constant since the late 60s; it’s already been forty years there, and nothing’s happened.
1997 was a long time ago. Real Russian per capita GDP has about doubled or more since then.
Also, a lot (maybe 30%) of Soviet output was on “defense” that did not increase the living standards of the Soviet peoples at all. So, it shouldn’t count as wealth in any meaningful sense.
So, I strongly suspect that most Soviet peoples have become considerably wealthier in terms of their living standards since 1991.
There were hidden costs under socialism like lousy quality and quewing to buy anything worthwhile.
Do it to get into the habit.
A university fundraiser I spoke to says that when they start pestering you for $5 or $50 from the moment you graduate, the money they are likely to get is not even enough to cover their fundraising costs.
But they want you to think of them as you get older and richer.
Likewise for charity-giving in general.
Also, charity giving has other values than the money. If you give a small amount to some organization, and your name gets on their donor list, you are helping signal to others — some of them, hopefully, richer — that you think the charity is worthwhile and that they should join you.
Another criticism: You talk about how the old are wealtheir than the young, but you don’t look in to the reasons why this happens. Maybe the old are wealthier because they saved their money over a long period. Maybe the old are wealthier because they happened to get lucky, and the longer your life has been going on, the more opportunities you have to get lucky. Maybe the old are wealthier because they lived during a period of high economic growth with lots of great investment opportunities.
Your argument works pretty well if salaries go up over the course of a lifetime, which does seem to be the case: http://www.payscale.com/college-salary-report-2013/majors-that-pay-you-back But not by orders of magnitude, just by a factor of 1.5 or 2. Also, it may be really important to maintain your youthful self’s standard of living as you age, so you actually have excess income to donate.
And it’s not clear that doing “anything” that levels you up is going to be equally good, either. Research has shown that conscientious people earn more–I take that as evidence that if you’re putting your nose to the grindstone, you’re doing something right.
You focus too much on money. Those not in a position to write checks can always donate their time and talents to charity.
Volunteering is more often than not a waste of time, both for you and the charity. A friend of mine, who works for a nonprofit, once said:
“It is extraordinarily difficult to figure out how to use volunteers. Almost any nonprofit trying to accomplish a skilled-labor task has many more people who want to volunteer their time than they can use. The Foresight Institute has the same problem: People want to donate time instead of money, but it’s really, really hard to use volunteers. If you know a solution to this, by all means share.”
See http://lesswrong.com/lw/65/money_the_unit_of_caring/ for a full explanation
I once watched as a poor woman put a few crumbled dollar bills in the Salvation Army plate. My friend said “She gave more than Bill Gates ever did. He donates from his wealth but she gives even in her poverty.”
I told him that was a stupid thing to say and sent him a link to this blog.
More to the point, the magic of interest compounding works best the sooner you start. If you want to help give a charity the thing it typically has the least of, time. Volunteer, teach an adult to read, tutor a child. Give yourself, it’s among the most valuable donation you can make.
That’s not actually true. Ask anyone who runs a nonprofit.
I agree with this blog posting. Furthermore, if you are an R&D scientist, engineer, or entrepreneur; you can far better effect positive change for the rest of humanity through your professional success than you ever could by giving money to charities or other forms of NGO’s.
Technological innovation and industrial wealth creation has far more transformed human life for the better than all of the charity actions put together.
How a charity uses your donation is most important. I cut back on gifts to my church and boosted giving to the Salvation Army because I know much of the former is consumed by overhead and real estate, while almost all the latter helps people in need.
As far as I know, nobody has done a really good study of the effectiveness of the Salvation Army’s work, but I’d wager it’s pretty low. If you’re interested in helping people I highly recommend you read the following:
I was sure you were going to make mention of another important work of the young, one that becomes less feasible or even impossible as they get older.
Money you donate now may go farther than money you give later. While I don’t think this is much true for the GiveWell charities, there are organizations (80,000 Hours, Giving What We Can, maybe CFAR, maybe Leverage, GiveWell if it had room for more funding) where I expect money now is far more valuable than money later.
This really all comes down to discount rates and rates of return. How much more valuable is it to give now? When you spend money on yourself what sort of return do you expect? Some investments (college) are probably well worth it while others (gym memberships) I’d be skeptical about.