Changing the Coefficients of Giving

One of the interesting things about the Atlas of Giving charitable giving model that I profiled yesterday is that they’ve shown that a very small number of inputs (financial markets, economic growth and employment levels) can accurately predict the level of charitable giving. So one way to frame efforts to increase charitable giving is that they are efforts to “change the coefficients of giving”.

The Atlas for Giving algorithm is proprietary, but let’s create a sample algorithm that given what I know about the Atlas is an approximation of what they are doing (however, all these numbers are made up):

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

What this sort of algorithm means is that charitable giving is a function of the level of the stock market, the rate of growth of gross domestic product and the unemployment rate. The higher the growth of GDP 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 (The Atlas does not reveal the specific inputs, but has said that indicators of employment, economic growth and wealth are used) has been very constant over time. So constant that going back decade after decade, their algorithm works.

So are we at the dawn of a Second Great Wave of Philanthropy? If so, the data on the level of 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”. To break the Atlas algorithm in such a way that for any given level of economic growth, net worth and employment, giving comes in at a level that is higher than expected.

The simplest way to think about the level of charitable giving is that it has been roughly 2% of gross domestic product for the past 100 years.

Charitable Giving = 0.02 * GDP

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 Giving Pledge. At the end of the day, it 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 rallying cry that charity nerds can get behind, but I’ll say it anyway.

Let’s Change the Coefficients of Giving!

One Comment

  1. Geri Stengel says:

    As you say, it will take decades, decades in which we raise our children to consider giving as part of their lives. I am much encouraged by the youthful social entrepreneurs such as Noah Fradin, an 18-year old who has started a business to make giving easier. It’s his philosophy that is impressive. “We want giving to be a part of every monetary transaction. Let’s end poverty. Let’s end world hunger. I really do think that’s possible.” Cloning him will change that coefficient.