Wednesday, 21 February 2007

Making Money or Giving It Away - Challenges are the Same!

One of the pleasures of making money is being in a position to give some of it away to charity. After all, as they say here is Scotland, shrouds don't have pockets. And I'd rather give it away myself than have the government do it for me. Once a DIY, always a DIY. However, given the effort and difficulties required to make the money in the first place, one doesn't want to simply squander it on bad or ineffective charities, of which I would guess there is the same range of fraudulent/incompetent to outstanding as there is in the investment industry.

It turns out that giving money away to good purpose is as difficult as, and requires many of the same competencies as, doing investment evaluation. Indeed, those who are good at making money seem to be pretty competent at giving it away when they are so inclined (Bill Gates of Microsoft comes to mind). In Canada in 2004, the Canada Revenue Agency is said to have estimated that there were more than 82,000 charities! One can even donate online - in Canada there is CanadaHelps.org. Assessment is a chore. For instance, the principle that overhead expenses should be minimized so that the maximum amount goes to the actual charity work is not so cut and dried as this article discusses. There is both over and under-investment in administration. Ideal ratios vary by type of charity work. There are performance metrics to compile and examine. And some charities pretend that their fundraising activities are separate from their program activities so that they can look good and state that all of the public's donations go to program work - sounds parallel to corporate tricks like off-balance sheet debt, n'est-ce pas? Not surprisingly, there are even advisor type charity ratings services like this, and this.

So, what's a person to do? What I've come to is what could be termed a following an informal mixture of Warren Buffett and Peter Lynch, i.e. select those charities one knows well, ignore diversification and choose a limited number.

One charity that passes muster for me is Child Haven International run by a couple who lived the talk of their work and adopted 21 children as this account details. I had occasion to attend a fund-raising dinner of Child Haven a few years ago and was highly amused by the difference in the way they came across when they spoke and the way the Ottawa TV station CJOH reported the event. The TV report was all about Fred and Bonnie Cappuccino as such wonderful people, which they truly are, but their modest and self-effacing remarks were all about the children and the work. They showed lots and lots of photos of smiling children, visible results of the work. Their solicitation materials are done very inexpensively, unlike the slick stuff produced by big-time marketers (a sign to me that a charity is spending too much on that administration/ overhead line item). It's a pleasure to give Child Haven money.

3 comments:

MillionDollarJourney.com said...

Informative post. I've been looking more and more into donating to charities, and I simply take a ratio of administration costs to their total income. It's a good point that you pointed out that not all charities are created equal, and some require higher or lower admin costs. Something for me to look into further.

Outroupistache said...

My other rule of thumb for small amounts only, is always to give to kids doing anything-thons for hockey teams, etc, or any neighbours canvassing for any charity (if they have taken the trouble to do that community service then I want to show my approval). I never give to "charities" whose paid workers show up at my door e.g. "would you help support run-away kids" by buying these products?"

Investoid said...

Last year I ran a charity event for the Alberta Cancer Foundation. It was a very fulfilling experience and we raised nearly $20K. I look forward to doing it once again this year.

I didn't have to look hard, since a close family member was afflicted with skin cancer. Sometimes the best screen is to see what's being done with the money up close (which with our aging population is all too easy sometimes).

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