Changing the Coefficients of Giving

Recently, a fundraising consulting firm called Philanthromax has begun publishing a report on charitable giving that strives to estimate total nation giving on a monthly basis. Its Atlas of Giving charitable giving model shows that a very small number of inputs (financial markets, economic growth, and employment levels) can accurately predict current charitable giving levels.

So, one way to frame efforts to increase charitable giving is to think of it as “changing the coefficients of giving.”

The Atlas for Giving algorithm is proprietary, but let’s create a sample algorithm with made up numbers that—given what I know about the Atlas—approximates what it is doing:

Charitable Giving = X + (1.5 * Change in GDP) + (0.8 * Level of S&P 500) – (3.2 * Unemployment Rate)

What this sort of algorithm implies is that we can predict charitable giving based on the stock market, the rate of growth of gross domestic product, and unemployment. The greater the GDP growth and the higher the stock market goes, the more charitable giving will increase. The higher unemployment goes, the more charitable giving will decrease.

What’s rather amazing is that the relationship between giving and these inputs (note: the firm does not reveal the specific inputs it uses in the Altas, but has said that indicators are employment, economic growth, and wealth) has been very constant over time—looking back, decade after decade, the algorithm works.

So are we at the dawn of the Second Great Wave of Philanthropy—a new age of philanthropy where donors are more engaged and philanthropy permeates our culture? If so, the data on charitable giving doesn’t show it. For those of us who seek to increase the level and effectiveness of charitable giving, the challenge is to “change the coefficients of giving” and to break the Atlas algorithm so that giving levels exceed what has historically been the case for given levels of economic growth, net worth, and employment,

Charitable giving has accounted for roughly 2% of US gross domestic product for the past 100 years.

Charitable Giving = 0.02 * GDP

The number 0.02 is the “coefficient” in the equation. That equation is not an immutable law of nature. It is a function of the culture of giving in the United States. Most other countries have lower levels of charitable giving to GDP. So the challenge is how do we change the equation to:

Charitable Giving = 0.04 * GDP

This challenge is the true intent of the Gates/Buffet Giving Pledge. At the end of the day, this increase in the amount of giving is the implicit goal of many, many efforts to improve philanthropy. If we do it, the data won’t show up in one or two years, but in one or two decades. But as we get better at measuring charitable giving levels, hopefully we will start to see errors creeping into algorithms that have worked in the past, as they start consistently understating actual giving levels. It might only be a cry that charity nerds can rally behind, but I’ll say it anyway: Let’s change the coefficients of giving!

Read more stories by Sean Stannard-Stockton.