An all too popular myth is that giving away money is good is a thing. Money is simply an instrument to enact action. So why would transferring it from one place to another automatically produce positive outcomes? And are you maximizing the good you are doing?
Most Charities Are Ineffective
Donating to an ineffective charity can actually be a net negative when the money is used ineffectively. It’s all about how money is used. It also not dependent on the legal structure of an entity. Simply being a non-profit does not mean it is beneficial, nor does not being one denote unworthiness. Other entities can allow for more flexibility, such as the Emerson Collective, a for-profit LLC, which both invests and donates money.
It’s a mistake to donate to a charity only because it is currently trending, popular, or personally meaningful to you. We must also recognize the difference between donating to feel good and donating to make the biggest impact. They are two different goals but often conflated.
If you could make a significant impact (i.e. save a life or big life improvement) to one person or a hundred people with the same amount of money, which would you choose? You should make your charitable allocations impartially to help the maximum number of people.
How do we do that? We should understand that donating to someone in a developing country will make a much greater difference than donating to someone in a developed country. Don’t make decisions on emotion but ask the charity for verified data on exactly how much a thousand dollars does. It’s foolish to donate to a charity and not know what kind of impact it will make. It usually takes $2000 to save a life from a preventable disease in an impoverished country, although it can cost less.
Charity is Only One Way to Make an Impact
Charity isn’t the only way to help others. The power of business is tremendous. Imagine you’re considering giving 10K to a local charity helping the needy find and train for jobs. Depending on how effective the charity is (and most aren’t), they might be able to help five people thanks to your donation. You donated that money because you wanted to help people, right?
But you could also start a business for 10K. You start off as the sole employee but a few years down the line years, you’ve given 20 people jobs. Not only have you given more jobs than your donation would have but also have profits coming in year over a year, which allow you to hire even more people or donate more money to charity than you previously could possible.
Not to mention the benefits your business brings to consumers and your community. Perhaps you don’t want to start your own business. You might even invest 10K in an entrepreneur you really believe in, helping their business at a time when they needed it the most. The same positive results could have been created. A business can truly be an impact tool to make a difference.
There are rankings out there that measure who has donated the most to charity. There should also be a ranking for who has created the most impact (of course precisely detailing the metric of impact). I would say the greatest climate philanthropist of all time is not one who has planted the most trees but one has prevented the most CO2 from being emitted.
Antoine Moses holds the World Guinness Records for planting 23,060 trees in 24 hours. Let’s say you are a third as productive and do nothing but plant trees for 12 hours a day, 5 days a week, 50 weeks a year. You would have planted 961,000 trees a year. It can cost $1 to have a tree planted, so this is equivalent to donating 961K. We also assume these trees will never rot, be burned or cut down.
The average tree absorbs 22 pounds of CO2 every year for 20 years. That means thanks to your labor or money you’ve taken 9525 metric tons of CO2 out of the atmosphere. Good job!
What if instead of donating to charity, you invested or started a business that prevented CO2 from being emitted? As an extreme example, Tesla in 2021 said its cars, energy storage and solar panels combined have avoided 8.4 million metric tons of CO2 emissions. From these metrics, we could confidently say that Elon Musk is the greatest climate philanthropist of all time.
It’s also clear that the success of Tesla has pressured the automotive industry to transition to electric cars much quicker than it would have if Tesla never existed. By accelerating this timetable by as much as a decade, it’s likely over a 100 million tons of CO2 were avoided by other car makers switching from gas to electric vehicles.
With high impact companies like Tesla, it clearly makes sense to continue reinvesting its profits into the company to keep producing these amazing results. That’s why it makes no sense to suggest to someone like Elon Musk to sell shares of his company or take a share of the profits to donate when clearly the company is making a greater impact than any charity could ever hope for.
If you want to create or support someone making a meaningful impact in the world, funneling your money into a high impact company can be effective way to do so. And if you’re looking to donate, ensure you do it impartially to an organization that helps the most amount of people for your dollar.
