While poverty rises, charitable donations are collecting dust

Philanthropy could nearly eliminate extreme poverty now — if donors decided to stop deferring their gifts.

A movement for “patient philanthropy" advocates holding on to donations until worthier charities present themselves.Bloomberg/Photographer: Bloomberg/Bloomber

One of the world’s leading charity evaluators, GiveWell, recently came out with this advice: Save your donations. Or essentially, “Donate to us and we’ll save it for you.” The organization announced it’s committing half a billion dollars to poverty programs but not giving it all yet. The logic: The organization didn’t find enough “cost-effective” programs this year, so it will hold some donated funds in hopes of finding higher-impact opportunities in the next few years.

Such advice echoes a growing movement of “patient philanthropy” that advocates for waiting for worthier charities to present themselves rather than giving to the ones that exist today. Some funds are pledging not to spend for decades.

This “commit now, spend later” approach is not new in itself, and other examples are even more concerning. Foundations and donor-advised funds hold over $1.5 trillion in “donations” that sit collecting dust. Donations to such funds earn a tax break at the time of donation and interest thereafter, yet the funds are required to do little to no annual giving to those in need. Foundations distribute only slightly more than is mandated under the tax code — 5 percent of their holdings each year — and assets in donor-advised funds have more than doubled in the last four years alone.

Since the start of the COVID-19 pandemic, this problem may have become even more acute. While the value of the S&P 500 index has risen more than 40 percent, individual giving has risen by only 2 percent. And with roughly 150 million additional people falling into extreme poverty globally, waiting to donate now is worrying. For context, extreme poverty is characterized by the United Nations as the “severe deprivation of basic human needs” that include food, shelter, and clean water. This is the poverty that kills, with as many as 15,000 dying of starvation every day, according to Oxfam. It is the poverty for which tomorrow doesn’t exist, a poverty that demands urgent action.

It is also a problem that is solvable. The extreme poverty line is $1.90 per day. In other words, transferring no more than $1.90 a day to someone will lift them above the line. It’s a remarkable opportunity to change another person’s life. Globally, the Brookings Institution estimates, the poverty gap — the amount of money that would have to be spent to lift everyone out of extreme poverty — is $95 billion. Since the world’s total gross domestic product is almost 1,000 times that amount — roughly $90 trillion — we could end extreme poverty and still have money left over for climate change, vaccine discovery, infrastructure development, and more.

So why are some donors waiting? It’s true, as some people argue, that there may be more efficient ways in the future to help people in poverty. And there is certainly waste in the sector. But still, there is no shortage of worthwhile investments. The Life You Can Save, a charity evaluator founded by the philosopher Peter Singer, recommends 16 organizations working on urgent matters of global health and well-being. There are many more examples. Donors can cover the cost of treating obstetric fistulas or blindness, fight iodine deficiencies, or fund COVID-19 vaccinations through COVAX.

There is another option as well, which GiveDirectly, an organization I cofounded, facilitates: Give the money to those in poverty and let them decide how to spend it. I suspect they wouldn’t wait. We don’t let people in poverty make our saving decisions, so why are we making theirs? Direct cash transfers are one of the most solidly proven interventions, with documented impacts on health, nutrition, and well-being. And with the advent of mobile money technologies, cash transfer programs are also among the most scalable.

The opportunity for direct giving should be a powerful counterweight to waiting. While we hope “better” opportunities are found, there’s a lot of money to spend today. If a charity evaluator can’t find more than $500 million of worthy opportunities, what should be done with the $1.5 trillion sitting in foundations? Or the half a trillion that Bill Gates, Warren Buffett, and many more have promised through the Giving Pledge? Or the additional half a trillion of annual US charitable donations, $160 billion of international aid, and so on? Shall we put international aid in a savings account and wait?

If this sounds absurd, it is. Patience is not a luxury people in poverty can afford. Some donors are reflecting this urgency. MacKenzie Scott gave away $8.6 billion over 12 months, faster than anyone in history; John and Laura Arnold co-founded the Initiative to Accelerate Charitable Giving to incentivize the distribution of funds from philanthropic institutions.

Their actions reflect an important truth: There is now enough capital in the world that we can afford to anchor to an absolute bar (i.e., returns are sufficiently high to justify helping now), not a relative one (i.e., returns could be higher in the future than today).

At a minimum, we each have the opportunity to take another person out of poverty, and together, we might even end global poverty. Now is a great time to start.

Michael Faye is the cofounder and president of GiveDirectly and CEO of Taptap Send, a cross-border payments company. He holds a PhD in business economics from Harvard.