Philanthropy not just for the ultra-rich
We’ll send you a myFT Daily Digest email rounding up the latest Warren Buffett news every morning.
Bill Gates. Warren Buffett. The massive transfer of wealth between generations. Stories abound about billions of dollars being set aside for charity. Yet there is an even bigger story unfolding; the story of a growing number of everyday individuals who are waking up to the fact that they, too, can engage in philanthropy.
The fact is that philanthropy is no longer only for the ultra-rich. A good rule of thumb is that you should consider philanthropic tools such as transferring stock or using a donor advised fund if you give more than $500 a year. If you give more than $25,000 a year you can consider charitable trusts and private foundations – the same tools utilised by Gates and Buffett.
Just as financial markets have developed new investment tools, a philanthropic “marketplace” is emerging that features new, sophisticated and cost-effective ways to give.
The most significant development is the falling cost of setting up a private foundation. Until recently, conventional wisdom said you needed to put $3m to $5m into a foundation for the operating expenses to make sense. That is why the bulk of the $550bn in private foundations still resides in the mega foundations with household names. Today, more than 60 per cent of foundations have less than $1m in assets. Starting a foundation costs about $4,000 and foundations as small as $250,000 can
make sense for pro-active donors.
DAFs, which have been offered by community foundations since 1935, are also fuelling the growth in individual philanthropy. Financial service firms such as Fidelity and Charles Schwab now market “charitable checking accounts”. With account minimums as low as $5,000, DAFs have become one of the fastest-growing giving tactics.
All these changes have helped create a new kind of donor – “tactical philanthropists”. They have hopes as high and dreams as grand as any other donor but recognise that how they give is just as important as what they support.
Anyone can give away money. Giving it in an effective way that maximises your ability to give and minimises your cost of giving requires careful planning.
Tactical philanthropists approach giving with the same intensity that they bring to earning their money in the first place. For these donors, their name on a plaque is not the goal. They want to make a difference.
Tactical philanthropists are not just using new financial tools, they are also exploring new approaches to philanthropy. One such approach is venture philanthropy, building the capacity of non-profit organisations so they can deliver their programmes and services to more people. Venture philanthropists also offer their time and intellectual and social capital. Social Venture Partners, a leading venture philanthropy organisation, says its membership has grown by 18 per cent since the beginning of the year.
Another example of the changing face of philanthropy is the growing popularity of social enterprises – for-profit companies that are in business to do social good. Green Dimes is a for-profit company that helps consumers reduce the amount of junk mail they receive. But its bigger mission is to create a national Do Not Mail list, similar to the Do Not Call list that limits telemarketing. Ironically, if they achieve their mission, they will drive themselves right out of business – a fact they proudly trumpet.
Microcredit is also gaining traction. This is the practice of lending small amounts of money to entrepreneurs, mostly in the developing world, to help them start businesses that will raise them out of poverty. Just last year the Nobel peace prize was awarded to Muhammad Yunus and the Garmeen Bank for their use of microcredit to create economic and social development.
Some tactical philanthropists argue that you can make a profit while advancing your philanthropic interests. San Francisco-based Good Capital operates like a venture capital fund. It invests money from wealthy individuals and distributes earnings back to investors. The difference is that Good Capital invests in non-profit organisations as well as for-profit ones that perform functions associated with non-profit charities.
Just as individual investors transformed financial markets during the 1980s and 1990s, so too can tactical philanthropists change philanthropy in the coming years. While there are several exciting developments unfolding, the fact is we are just getting started.
The writer is a principal and director of tactical philanthropy at Ensemble Capital Management and author of the blog TacticalPhilanthropy.com. firstname.lastname@example.org
Get alerts on Warren Buffett when a new story is published