Giving now currently seems to beat giving later

Effective altruists are interested in doing as much as they can to make the world a better place, and many of them think donating their money as effectively as possible is a good way to do that. However, there is a debate among effective altruists whether one should either (a) donate a specific portion of one's income in small installments each year or (b) invest one's income and then donate as much as possible in one large lump sum right before death. Of course, there are other positions -- like donate every month or donate every decade, but in a very relevant sense the debate is between two options: "give now" vs. "give later".

In this essay, I will defend the "give now" camp and rebut the "give later" camp, thus explaining why I will continue to donate once a year, though think any sort of regular time period smaller than each year is probably also acceptable.

But first, why give later?

The biggest champ for the "give later" crowd is Robin Hanson, who makes his view known most recently in "If More Now, Less Later":

But at the margin, a person who saves another dollar, or chooses not to borrow another dollar, must typically expect the financial returns from their investments will help them more in the future than will such indirect effects of spending today. In fact, they should expect this savings will benefit their future self more than any of these other ways of spending today. After all, why give up money today if that both gives you less to spend today, and gives you less in the future? So there wouldn’t be any savings, or less than maximal borrowing, if people didn’t expect more gains later from saving than from spending today.

This implies that unless charity recipients are saving nothing and borrowing as much as they possibly can, they must expect that you would benefit them more in the future by saving and giving them the returns of your savings later, than if you had given them the money today, even after taking into account all of the ways in which their spending today might help them in the future. So there really must be a tradeoff between helping today and helping later; if you help more today, you help less in the future. At least if you help them in a way they could have helped themselves, if only they had the money.

Or, more basically, there are two concepts:

First, there is the "growth rate" of donation -- by donating to a non-profit now, they get to do things with your money now, helping people immediately who then could be in a better position to give back, or by spending money on dreaded "overhead" (which isn't evil, by the way, but that's a matter for another time), putting them in a better position to grow now.

Second, there is the "investment rate" of saving/investing your donation money rather than donating now. This should be the easier of the two concepts -- you save your money, it grows in a certain percentage, and then right before you're about to die, you take all that money out and donate it.

And then to oversimpify the complex topic, you should be willing to donate now as long as you think "growth rate > investment rate", and save now as long as you think "investment rate > growth rate", plus a few other complications to be discussed.

Ok, so what's the investment rate, then?

Finding out the precise investment rate is complicated, but I think Jeff Kaufman has done some really good work on it in "What Rates of Return Should You Expect?". Basically, many sites suggest returns on investment between 6% and 12%, but this (a) ignores the average of 3% inflation, (b) involves cherry-picking, and (c) only focuses on US data. Articles like The Economist's"Beware of the Bias" point this out.

So if we're really optimistic, we could consider the investment rate to be 12% and if we're really pessimistic, we could consider it to be 0%, or lower! But I'd expect the real (inflation adjusted) rate of return on your investment to be between 3 and 5%. This means that if I had opted to instead take the $659.70 donation I made last year and instead invested in it, given that I expect to live around 70 more years, I could realistically realize $5,372.94 to $21,687.36 if compounded monthly.

Ok, so what's the growth rate, then?

But what about the other side of the coin -- growth rate from your donation? I see the potential size of this being huge. Unlike the investment rate which I think is overestimated, the growth rate seems underestimated.

Honestly, whatever the growth rate is on your donation is going to depend largely and entirely on where you donate. But if you're donating to advocacy, you could realize really large returns because of what's called the haste consideration:

[I]magine two worlds:

(1) You don’t do anything altruistic for the next 2 years and then you spend the rest of your life after that improving the world as much as you can.

(2) You spend the next 2 years influencing people to become effective altruists and convince one person who is at least as effective as you are at improving the world. (And assume that this person wouldn’t have done anything altruistic otherwise.) You do nothing altruistic after the next 2 years, but the person you convinced does at least as much good as you did in (1).

By stipulation, world (2) is improved at least as much as world (1) is because, in (2), the person you convinced does at least as much good as you did in (1).

Essentially, convincing just one person to do what you would do (go vegetarian, join Giving What We Can, etc.) as ardently as you would do it (or nearly as much) would have the same effect as your entire life's work. Robin Hanson stated the case for giving later over giving now as "if more now, less later".

But with the haste consideration, it's actually if more now, more later, because you'll be convincing people to do things they would otherwise have not done at all (presumably).

And you can donate money to convincing people -- by donating to Vegan Outreach for veganism or Giving What We Can directly for donation outreach. I have tried to calculate the cost per converting a vegetarian elsewhere and I'm told by Will MacAskill that, if I'm reading the spreadsheet he gave me right, it would cost an estimated $1779 to $4327 to acquire a new Giving What We Can member (I believe you can email him for details on that).

Thus, let's assume that, in my lifetime, I'll earn at least a $50K/year salary. Now assume that it costs a conservative $10K/year to recruit a Giving What We Can lifetime, committed member (who will also earn at least a $50K/year salary). I can either do two things:

(1) invest 10% of my salary each year at 5% return compounded monthly, and then, upon my death, buy as many committed GWWC members as possible. (2) donate 10% of my salary each year to buy as many committed GWWC members as possible.

According to this investment calculator (which I used earlier), option #1 will yield $3,200,782.84, which could buy 320 committed GWWC members.

Option #2 would add a committed member every two years, producing 45 committed GWWC members over my predicted 70 year lifespan. This looks bad, but now remember that each of those members would then get a chance to recruit new members using their money. The first person I get would then commit $340K of their own lifetime earnings over the remaining period (68 years, since I recruited them on year 2, at $5K/year contribution). I'd only need to recruit ten members myself to dwarf the investment strategy, and that's not even counting all the second-stage members those first-stage members recruit.

At this point, I wish I was a math major and knew how to calculate this out with a simple formula. Instead, I talked to a math major (who is also a GWWC member), and he mentioned that basically, the group effectively doubles over the two year period. I save up to $10K at year two and recruit someone, and then in two years (year #4) we both have $10K and recruit someone, and then in two more years (year #6) all four of us recruit have $10K and recruit someone each, bringing the total amount of people recruited to twelve. By year #70, I will have recruited, directly and indirectly, 1+2³⁴ people, or 17.1 billion new GWWC members.

Obviously, this is implausible because there aren't even 17 billion people and recruitment efforts would certainly be nonlinear. And there are other problems. But it's a simple way to prove the point. Hopefully this shows the benefit of compounding via the haste consideration to recruit new people who wouldn't have donated their money otherwise.

Even if Option #1 were considered to recruit people who then saved all their money and recruited other people, by year #140 it would only have 102,400 people recruited, whereas Option #2 would have roughly 10⁴¹ people recruited.

Even if the growth rate isn't 100% every two years, it's considerably higher than 5%, I think. Thus since growth rate > interest rate, I advocate donating now. At least until someone finds the inevitable unobvious flaw in my thinking.

As Brian Tomasik argues in "The Haste Consideration Reconsidered", we'll probably hit diminishing marginal returns on GWWC recruiting soon, and thus should reconsider our donation target, re-evaluate the growth rate, and maybe shift back to investing rather than donating. But, right now, the prospects are still high and there are still many bright and active individuals who have not yet been recruited. Right now, we can use our money to make sure they use their money better.

Thus my answer to Robin Hanson: More (of our money) now, more (of their money) later. At least, while it lasts.

Other complications

Now time to explore some additional factors that may modify the consideration. The main argument has been made and this is is basically appendix material. Feel free to stop reading at this point, if you wish.

US tax law

This is an obvious factor to consider, but US law says that if you donate instead of invest, you can claim a deduction. This deduction would appear annually, thus allowing you to donate additional money. If you're earning the 50K I was talking about earlier, you'd be taxed at effectively 16.9%. This would mean you could get back $845 on a $5K donation, assuming I understand tax law right.

If I donate $5K annually without investing, I'd actually be able to donate $409,150 over my seventy years rather than the original $350,000. If I had invested and then donated it all, I'd get $3,741,715.14 instead of $3,200,782.84.

The changing nature of non-profits

There's a good chance that if Giving What We Can stopped receiving donations, it would just collapse and then the opportunity to donate to it in seventy years would be gone (though I suppose it could be refounded with the new cash). Additionally, GWWC couldn't learn from the seventy years of being able to operate, spend money, and try things.

And GWWC seems to be in a prime place right now to expand a lot and really grow it's outreach. Thus it's at a critical time to fund when the marginal cost to recruit a new member is at probably some of the lowest it will be. Now, not in seventy years, is a great time to get in.

Furthermore, I speculate that the marginal value will grow at a rate higher than the interest, such that $5K/year for seventy years would buy more members for GWWC than a flat $3.7 million in seventy years would.

You might be smarter in the future

There's a good chance there might be better giving opportunities in seventy years, identified through our collective greater intelligence, your years of added experience, and the changing world (though GiveWell disagrees, as does GWWC). This could mean it is better to give later, because you could be donating to an overall higher impact opportunity.

You might change your values

Some people are concerned that if they stored their donation money for seventy years, their future self might not care to donate it anymore. Personally, the way I view my personal identity, I'd rather have done what my future self wanted me to do, so if my future self seventy years from now wished I would have been less altruistic, I want to be less altruistic now, so I don't see this as a concern. But if you do, you should donate now, before your future self has a chance to redirect the money.

One way to protect from this might be to use a donor advised fund, which would also get the benefit of more charity deductions (since you can deduct each contribution to your fund) and your future wisdom while forcing your future self to donate.

Better advocacy

It seems much easier to convince someone to give a little each year than to follow a solid savings plan -- as Scott Alexander states, there are some strange psychological effects that make us feel strongly like giving now and giving regularly is better, and we can secure the warm fuzzies feelings and social status of being considered a regular donor.

Moreover, if you convinced a friend to donate, you'd know much more immediately if they actually plan on sticking to it if you can see a donation they make in December rather than having to wait until they die. (Though I suppose this too could be solved by having them contribute to your donor advised fund, if they trust you a lot. But I imagine the average person wouldn't.)

Thus even if privately you should save, I think the best strategy to adopt publicly (when not speaking from an analytical point-of-view) is to encourage others to donate now.

An earlier version of this post appeared on Everyday Utilitarian