Bank of America regularly conducts a study on the philanthropy activities of high net worth individuals. In 2010, they compared respondents’ risk tolerance in investing as compared to charitable giving. One of the most striking findings was the dramatically lower risk tolerance for philanthropic spending when compared to investments.
A quarter of the 800+ respondents, with an average net worth of $10.7 million, are “not willing to take any risk" with their philanthropic money. Only 10% felt the same about their investments. On the other hand, 35.2% of respondents reported taking “above-average" or “substantial" risk when investing, while only 22.9% do so with philanthropy.
These results are striking to me as someone with a decade of experience with non-profits on three continents. This risk-averse approach would be appropriate if we had well-established program models that were proven to be optimal for addressing the various problems that philanthropy seeks to solve. However, popular and academic discussion of late confirms that this is far from the case. Whether US education, maternal health in Africa, clean water in Asia, or myriad other social challenges around the world, there is little doubt that the bulk of charitable money is not delivering the quality or quantity of results any donor would hope for.
On the other hand, creative solutions to many of these problems are emerging. Think of clean cook stoves reducing asthma, mobile banking that enables saving and micro commerce, or point of sale tablets that allow rural storekeepers to manage their inventory and sell data to Fortune 500 companies. The main challenge facing many such solutions is ‘scale’: developing and serving a market that is large enough to deliver services efficiently, whether funded by philanthropy or eventually becoming self-funding. As in business, risk capital is required to allow these ventures to expand and attain financial viability when possible.
A more creative, riskier approach to philanthropic spending would also deliver more intangible return to many investors who are entrepreneurs themselves and could enjoy the adventure of contributing to successful new ventures even if not all of them succeed. If you’re interested in having more fun with your philanthropic activities, and/or more impact with your investment, contact me for further insights and opportunities.