Are Charitable Gifts Investments?

By Colin Peterson

Recently I was having a conversation with a friend about my work at United Way of Central Iowa. I made a reference to investments our donors are making in Central Iowa. My friend stopped me and said, “Whoa . . . giving to charity isn’t an investment. Making an investment implies an expectation of getting your money back and then some.” This got me thinking: in the world of philanthropy we frequently and easily talk about charitable gifts as investments. But is that appropriate?

To kick off my research I went where most Millennials go for information – Wikipedia (disclaimer – I don’t endorse using Wikipedia for research when writing anything more formal than a blog). Turns out the investment entry on Wikipedia reinforces my friend’s impression that “investing is the active redirecting of [sic] resources from being consumed today so that they may create benefits in the future; the use of assets to earn income or profit.” Though Wikipedia didn’t give me the ammo to counter my friend’s assertion, I thought I best dig deeper.

My next stop was my boss’ office. Liz Cotter Schlax is Senior VP of Resource Development at United Way of Central Iowa. She is pretty smart (I’m not just saying this to kiss up – it can be independently verified) so I thought I would pose the question to her: “Is it appropriate to refer to charitable gifts as investments?” Her response? "Absolutely." (No surprise there). I asked her to elaborate. She said she thinks of it the same way you would think of investing time to help a friend. Your assistance and time commitment aren't one-time occurrences, but an ongoing engagement wherein you take an interest in how they are doing and whether or not the time you spent actually helped. I liked her response; it helped personify the whole investment question and charity. However, I didn't think I should stop there.

Next, I went into Sarah Roy’s office. Sarah is United Way of Central Iowa’s COO and a hardcore numbers person (she was an actuary in a prior life – also very smart). I knew she would be able to help me explore the relationship between investments and charities. Sarah also agreed that giving money to charity is an investment. She explained that in a traditional investment (the kind you hope to turn a profit) the investor has two primary considerations: (1) the potential return they can expect on their investment and (2) the risk level or predictability of the return.

When a donor gives to United Way, they are considering the return which in this case is the expectation that lives will be improved. Although giving $1.00 to United Way doesn’t mean you’ll get $1.10 back in your pocket, the payback comes down the road in the form of greater community stability which lends itself to economic growth and a higher quality of life – both worthy aspirations that can benefit the original donor.

When considering risk/predictability, an investor will analyze information demonstrating the investment’s prior performance and current standing. A potential donor to United Way of Central Iowa will consider our history in the community and ask for information on how many lives we’ve positively impacted, what outcomes have resulted from past investments, and is the organization transparent with its governance and finances.

So I feel content to continue talking about gifts to United Way as investments in our community. However, let’s face it - these are all perspectives from people that work here. What do you think? Post your comment on this blog for others to read or send me an email at cpeterson@unitedwaydm.org. I look forward to hearing from you.

**photo courtesy of Thomas Picard