How To Give It: a complete guide to smart philanthropy

“You very rarely meet an ex-philanthropist,” says Theresa Lloyd, a former lawyer and the author of Richer Lives: Why Rich People Give. Why? Because the “psychological rewards” are so gratifying.

Talk to almost any major donor or read the statements made by the 200-plus billionaires who have signed the Giving Pledge – the undertaking to donate at least half of one’s wealth drafted by Warren Buffett and Bill and Melinda Gates in 2010 – and they will tell you that the satisfaction that comes from making a difference philanthropically far outstrips the happiness they found in making their fortune in the first place.

There are neurological reasons, an actual physical feelgood factor, to support this. As discovered by the co-authors of a paper on the “hedonic consequences of financial transfers to the public good”, published in the journal Science, the very act of making a donation signals neural responses similar to those that are triggered when you catch up with old friends or sit down to a good meal when you’re hungry.

“It can be quite an addictive endeavour,” says Joanna Walker. As head of private clients at the Charities Aid Foundation (CAF), which acts both as a consultancy and a bank for the not-for-profit sector (a charity to promote charity, if you will), she advises high- and ultra-high-net-worth individuals on giving strategically, both in order to maximise the impact of their donations and to ensure they get as much as they can out of the experience, because “the more you enjoy it, the more you are likely to give. It really is the best thing you can do with your money.”

Yet according to the CAF’s UK Giving 2019 survey, “For the third year running, significantly fewer people say they are giving money [to charity]”. The amount donated – about £10.1bn annually in the UK, down from £10.3bn the year before – may be “relatively stable [as a] result of a smaller group of dedicated donors giving more”. But the number of donors is falling, just as it is in the US. The Giving USA 2019 report says that charitable gifts made by individuals in the world’s most generous nation are also in decline, from $302.51bn in 2017 to $292.09bn in 2018, a drop of 3.44 per cent.

The reasons are manifold. With almost 170,000 registered charities in England and Wales alone, the sheer number of causes can seem bewildering. Political uncertainty, stockmarket volatility and an overall nervousness about the future tend to make people circumspect about spending, even charitably. And as Barclays Private Bank’s recent Barriers to Giving report revealed, 75 per cent of the 400 multimillionaires asked believe philanthropy is the responsibility of those wealthier than they are.

A succession of negative news stories about Oxfam and Save the Children (which nevertheless posted an income of £970m in 2018) has also proved a disincentive in some quarters. “When Oxfam had the terrible [sexual exploitation] scandal in Haiti and lost their statutory funding and members of the public were cancelling their direct debits in droves,” says Walker, “a donor called us and said, ‘I want to lend them £12m because I fundamentally believe they are a good organisation, and I know them well enough to think that they will come through this. But if I don’t dive into the burning building when everyone else is running out, they will have to make decisions that will impact their beneficiaries, and that will cost a lot of money because it will descale everything and that will have to be rescaled when the funds return, which they will.’” Philanthropists of that calibre, she notes, “do think very seriously about what they support” and once they’re committed, “they’re not easily swayed”.

So what makes people give? Altruism is the common answer, a desire to share one’s good fortune. After all, the word “philanthropy” comes from the Greek for “love of mankind”. And cultural and religious traditions may play a part too. Zakat, the third Pillar of Islam, requires the donation of 2.5 per cent of one’s wealth each year to the poor. Tzedakah, the definition of which combines charity with an obligation to seek social justice, is an important tenet of Judaism. Dana (charity) is an essential component of dharma (moral duty) in Hinduism, Buddhism, Sikhism and Jainism. And to paraphrase Jesus, the odds are stacked against a rich man entering the Kingdom of God.

Often it’s anger or a sense of injustice that persuades people to give. But the solutions are rarely straightforward, which is why it can be helpful to seek advice. Take homelessness. “You could support a local shelter providing a safe refuge for people in a practical way,” says Walker. “Or you could fund an organisation like The Connection at St Martin’s, one of the biggest hostels in the UK. Or there’s Shelter, which doesn’t run physical shelters but does provide advice to help them to get housing and also campaigns to change the laws on housing provision to prevent homelessness.” 

How someone made their money is likely to impact how they will give it away

As for deciding which charity an individual may opt to support, that may well be determined by whether he or she inherited or created their money. Where once the great majority of wealth in the UK was inherited, much of it in the hands of aristocratic families with a tradition of noblesse oblige, this century has seen a shift towards created wealth. Today, about 80 per cent of those on the annual Sunday Times Rich List of the UK’s 1,000 wealthiest families have made their own money. (Until 2015, it had always been headed by the Queen.) 

How someone made it is also likely to be reflected in the way they want to give it away, says Walker. Those who’ve started and sold businesses will usually do “an awful lot of due diligence to get underneath the bonnet of an organisation and its accounts” before they commit to supporting something, she notes. And those who’ve made their money in tech often want to focus on causes “that can seem incredibly specific and niche”. They’ll find a problem – a gap in the market, so to speak – “and decide to fix it”. The Gates Foundation, for example, aims to eradicate specific diseases. “That laser focus is very different from traditional philanthropy, where it might well be that a family had a range of charities they supported over generations.”

This is bad news for sectors afflicted by American economist William Baumol’s theory of “cost disease”, in which he concluded that wage growth cannot always be offset by better productivity or more efficient economies of scale, so its overall cost is consequently doomed to become evermore expensive. It takes the same number of people to play a Beethoven string quartet – the original focus of his study – the same amount of time as it did in the composer’s day. Yet the cumulative effects of more than 200 years of inflation mean the cost of four instrumentalists is exponentially higher. To play it faster, or with fewer musicians, would be missing the point. So the cost of staging live music, or theatre, or dance, will always increase as the cost of labour rises.

And so it is with charities – be they performing arts, museums, medical research, elite education or, indeed, social justice and care and disaster relief – that depend on skilled or expert practitioners who cannot physically work faster or be readily automated. They can be funded through taxation, of course, and in many nations they are. But even where there is state support, there’s often a shortfall that needs to be topped up with donations. 

Fortunately, support for these sorts of charities is often the most personally rewarding for the donor. “When people start giving they may not anticipate this, but you soon discover that not only does your support have an impact on the beneficiaries you care about, but you meet like-minded people who share your passions; you learn; you get to see behind the scenes, whether it’s attending rehearsals or being invited into the conservation studios of art galleries,” says Lloyd. “I was on the board of the Royal Marsden Cancer Campaign for nine years, and there were talks for donors every now and then in the laboratories it shared with the Institute of Cancer Research, where young scientists would tell us about their latest research. It was completely gripping, as though you had caught a glimpse of the future and were part of it. We felt so privileged, as though we were enabling something that might really matter. They were always at pains to point out that not everything would work. But we didn’t want only to be taught about its successes.”

This sense of personal engagement is critical to securing ongoing support. Although philanthropy tends to be something one comes to in middle age, millennial donors, in particular, are driven by a hunger for experiences and involvement in something different from their working lives. “I have a kind of travel bug,” says Patrick Franco, 37, former COO of Credit Suisse Asset Management UK and now COO of Foxtons Group, London’s biggest estate agency, as well as a trustee of the San Francisco-headquartered Global Heritage Fund (GHF). “So when I decided to do something philanthropic, it was important that I could get my hands dirty and check out projects.” 

Inspired by the idea that GHF is as much about “working with entrepreneurs or local stakeholders to create small businesses that then become the engine for change” as it is about archaeology, Franco was keen to get involved. “It’s a little like a venture-capital fund [in so far as] we’re able to act as a catalyst for change,” enabling remote rural communities to become self-sustaining by transforming heritage sites into “centres of economic prosperity for the community” through sustainable tourism. “For not a lot of money you can create an enormous impact.” 

There are huge perks too. “I didn’t appreciate the level of access I would get,” he says. “I thought I’d be able to visit the projects [over the past decade he’s visited sites in Cambodia, China, Colombia, India, Nepal and Romania], but not that I’d have opportunities to stay over in them or spend time with the world’s best experts in their fields, and keep in touch with them and introduce them to my friends. It’s like having an opportunity to go back to school and do another master’s. I never got to study something fun.” The networking potential of this kind is another part of the appeal. “I think our mission self- selects an interesting crowd of people,” he adds, noting that among his fellow board members are Tony Wheeler, founder of Lonely Planet, and Bonnie Cohen, the former US Under Secretary of State.

Opportunities to socialise at this level afford what fundraisers tend to refer to, at least unofficially, as the brag factor. And this can be another compelling motive. As does having one’s name on a building, school or scholarship. Witness the Harding Distinguished Postgraduate Scholars at the University of Cambridge, the first 100 of whom began their studies last October, paid for by the Harding Collegiate Cambridge Challenge Fund, which the hedgefund manager David Harding established with a £100m gift. He donated it, he said, in gratitude for his own education at St Catharine’s College, Cambridge, which “formed the foundation of my career”. And he hoped the fund would enable “outstanding students from around the globe to research and study here […] and, through their research, innovation and ideas, become leaders in our society and key contributors in tackling the world’s greatest challenges”.

They won’t all succeed in changing the world. But assuming they mostly go on to decently remunerated work, there’s a sporting chance a lot of them will follow Harding’s example and become donors themselves, as will his friends and peers. Because philanthropy is not just addictive. There’s also growing evidence to suggest it’s contagious.  

All How To Give It editorial content was commissioned and produced by the Financial Times. Barclays Private Bank funded our reporting but it is the independent journalism of the Financial Times, and Barclays Private Bank was not given any editorial oversight of the content.