94. Why the Rich Don't Give

Today we’re going to talk about why the ultra-wealthy in America only give about 1% of their assets away to charity.

I’m drawing from a report by Bridgespan in Nov 2018 called “Four Pathways to Greater Giving.” The Bridgespan Group is an offspring of Bain Consulting Company, Bridgespan is a 501c3 and they advice philanthropistis, nonprofits, that sort of thing. So they do research on giving as part of this work.

And this report in particular is about the ultra wealthy which is defined as a person who has more than $500 million in assets, an astronomical amount of wealth in a country where we don’t have clean water for everyone. Clearly our system is broken. The research in this report is trying to understand why our ultra wealthy folks are only giving away 1% of their assets away, sorry let me be specific, they are giving 1.2% away.

And given that market returns on their wealth were around 9% when they were interviewed for this report in 2018, you can see that their wealth is going to continue to grow astronomically while they give their 1.2% away. If they wanted to give away half of their wealth, and get down to an astronomically wealthy amount of assets around $250 million, they would need to be giving away more than 11% of their wealth every year for 20 years. And you may recall from the recent episode 83 about Warren Buffett’s Giving Pledge that lots of billionaires signed his pledge to give away their wealth and have not made much progress on that at all.

So what gives?

From their research, it seems like the biggest reason why the ultra-wealthy aren’t giving more is because honestly, they don’t have to. And with the 2017 legislation called the Tax Cuts and Jobs Act, this was a Trump law, it doubled how much money rich people could pass from generation to generation without paying estate taxes on it. It went from $13 million to $26 million. You can’t make this stuff up.

And so, we all know that rich people generally hate to pay taxes. They’d rather do anything than pay for our schools, roads, infrastructure. So often, they will give to charity as a way to achieve more tax write offs. So more tax cuts to the wealthy leads to less charitable giving from the wealthy.

Beyond that, when the ultra wealthy people were interviewed, they explained why they don’t give more than the 1.2% of their wealth.

They said that they didn’t know how to get started. Whereas there are all of these money managers that are geared towards ultra wealthy people, they don’t really have big firms that specialize in the same thing for their giving. They would probably have to hire a private philanthropy advisor to help them. But I think what a lot of ultra wealthy people are doing is relying on their money manager to help them make these decisions. And the incentive for their money managers is to reduce financial risk, not to give away more money. They get paid a percentage of the assets their client has.

Ultra wealthy folks also said that they couldn’t find “great” giving opportunities, quotation marks around “great.” They could find opportunities to give, but they weren’t great enough. I’m going to be honest, this one made me cringe. I think there’s an attitude that if someone knows how to make a lot of money, they also know other things. There’s an inherent distrust of the professionals who have actually worked in the nonprofit space, who have been in the trenches. I think sometimes there is this attitude of “well, if they knew what they were doing, homelessness would have been ended by now, or our public schools would be competitive internationally, obviously the nonprofit leaders don’t know what they are doing and we from the private sector need to show them how to get things done” rather than taking a posture of “maybe these nonprofit leaders know what they are doing but have never been funded properly to solve problems that are way more complex than earning a ton of money.” I think that ultra wealthy folks think that it is harder to become ultra wealthy than it is to repair our broken system. Ironically, it is our weak systems that allow such a cruel distortion as to allow the number of ultra wealthy people to triple in America while the majority of Americans are slipping downwards.

So I’m wondering how we can get the message out to our ultra wealthy fellow citizens. It’s easier to become rich than it is to repair the systems that lead to poverty. We can workshop the final wording, that’s my placeholder for now. It was easier for you to become rich than it is to repair the systems that lead to poverty. Or maybe, it’s easier for 1% of us to become rich than to repair the systems for the 99%? Am I getting somewhere with the wording lol, email me and let me know.

Ok back to the research, ultra wealthy folks also explained that they were afraid of giving to the wrong place and then getting skewered in the media. And they talked about how it can be hard as a family to agree on where to donate their money. Maybe the older family members want to give to their religious institutions and the younger folks want to give to their more liberal causes. Back on episode 81 I shared some thoughts on how you can get on the same page as your family when it comes to where to donate. Some of my research was based on the exercises that these advisors take very wealthy families through to try to figure out how to donate together as a family.

They reported that they felt a lack of urgency. Our tax codes don’t require them to give, so they don’t really feel any urgency until maybe when they pass on. Maybe. I’m a little skeptical that they are even giving that much away on their deaths, just based on what I learned in the episode about whether or not Patagonia’s founder really gave his company away, that was episode 67. An eye opening episode for me, that’s for sure.

So the little that the ultra wealthy do give goes to the same old hospitals, universities, religious institutions, and then some conservancy and arts organizations. They’re not really giving towards tackling inequality. Our growing inequality, which is what has led to there being so many ultra-wealthy Americans to begin with.

Which is odd, because when you read what these ultra wealthy families say when they pledge to give their money away, they talk about the American Dream. This concept that every generation will do better economically than their parents did.

But their donations aren’t actually going towards preserving that economic mobility. Their donations tend to go to universities and hospitals and other organizations with huge endowments.

So what’s going on here? The ultra wealthy talk about social change goals like eradicating homelessness or polio, but then their dollars don’t actually go in that direction. What gives?

So far Ive shared some insights from the report on why ultra wealthy Americans aren’t donating much in general.
But now I’m going to share some of the insights on why they aren’t giving towards inequality specifically, towards social change.

The first reason they shared is because most charities don’t have prepared ideas of what they would do with let’s say a $10million donation. And I shouldn’t say just a prepared idea, I mean a full out written plan, like a business plan of exactly how the $10million would be spent. And the reason that nonprofits don’t have those types of complex plans written out and just waiting is because it costs time and money to put those together and it is so incredibly rare to even have the chance to get a donation like that, it wouldn’t make sense to spend that much effort putting together a plan for a donation they would almost never actually get. But you know, I think that’s what the ultra wealthy donors want. I think they want to be able to go to multiple nonprofits and to say ok now what exactly would you do with $10million if you ever got it? Ok now what would you do? By the way, I don’t want any of my donations to be used for the staff to spend time responding to my requests and putting together these proposals. Ok never mind, forget it, I decided not to donate any at all, our taxes got reduced again, thanks uncle sam!

Second reason that ultra wealthy folks don’t give specifically to social change causes is because they feel like it is less risky to just donate to the university that is big and old, or the hospital. Or the example they give in the report which is a library. They’d rather just give the $10 million towards building  a new library because they know what a library is and it is familiar. Now what’s super interesting is that they don’t actually ask for data on how that new library has increased literacy rates in the neighborhood. Same with the donation to the hospital, they don’t ask for data to show that the new hospital wing that they donated has improved patient outcomes. BUT when it comes to giving towards social causes, now they are asking for the data. They want to see that their donation moved the needle, and it moved the needle within a few years. There’s a double standard.

And I think a lot of us have that double standard, probably most of us. Episode 13 was about that.

So those are the reasons why the ultra wealthy aren’t giving. If you actually work in this field and want to know about the solutions that Bridgespan came up with, I’ll link the report for you.

But for the rest of us, who don’t work in philanthropy, who are just people that feel really uncomfortable with growing inequality, with poverty, with poor educational outcomes, homelessness, or whatever your thing that keeps you up at night, my final thought is about how we can learn from this research, what might be applicable.

I think the first thing we can do is a simple journaling exercise. Set a timer for 5 minutes and then answer the question, what do I want my donations to do? And see what you come up with. You might find out that you want your donations to give back to your community. You might discover that you want your donations to pave the way for someone who overcame what you overcame. Maybe you get more specific than that. And the second question I want you to answer is “how much do I want to be donating?” I have a lot of episodes on that topic, but you could start with episode 2. It’s short and light.

And then the key is to compare what you're actually donating compared to what you want for yourself.

And if you’re looking to get more alignment between what you want to be donating compared to how much your’e actually donating, you can check out episode 14 when your donations aren’t stacking up.

Let me know what you thought of today’s episode. As you know, the podcast just reached 2 years old, it’s wild to think about, but you’re still here, I’m still here, so let’s keep this thing going :-)

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Have a great rest of the day and let’s talk again soon!

https://www.bridgespan.org/getmedia/37911384-bac3-4a5c-8c3d-8ddafd21f928/four-pathways-to-greater-giving-no-appendix.pdf?ext=.pdf