Monday, August 19, 2013

Breakthrough Charity Idea: Give Money to Poor People

Happy Monday, everyone. Today's short post centers on two podcasts I recently listened to on NPR, which followed a charity called GiveDirectly that has a simple mission: to give money directly to those in need. Instead of providing training or equipment or performing work or building schools...what if you just gave money to poor people? The simple idea is based on an old economic principle: people know what they need, and how to best get what they need, better than anyone else. Give them money and you not only get the best results--it also dramatically simplifies the charity process. And the concept is being put into action: GiveDirectly is giving away $5M this year.

I won't ruin the podcasts as they are both excellent shows worth listening to. Here is the short podcast from Planet Money, summarizing the concept; and here is the slightly longer podcast on This American Life. But I want to just discuss the idea, as my wife and I did, each of us coming to a different conclusion.

Why Giving Money Might Be a Good Idea
I find this kind of charity to be a lot like micro-credit, just without the loan. The genius of micro-credit is that it provides relatively small amounts of money to individuals with no access to credit and/or no collateral. These small funds are often used to start small businesses, and these businesses often are the means by which the impoverished break out of poverty. Access to credit gives the recipients unprecedented economic mobility: the injection of cash, in many cases, creates a much higher income than would otherwise be possible.

But what if you simply removed the obligation to pay back the money, as well as the process of vetting loan applications? What if you just gave poor people the money instead, no strings attached?

Additionally, charities are often focused on a relatively singular idea. DebtandtheGirl recently wrote about a charity that saves women from sex slavery. A friend of mine worked on Mercy Ships, an organization that sails a floating hospital around the world and gives medical care to those in need. However, the specificity of these organization's missions means that some needs just aren't a good fit with the charity. Giving cash widens the scope: money is more flexible & inclusive than medical care or a center to house abused women.

Why Giving Money Might Not be a Good Idea
My wife rightly noted that people, poor or not, might not necessarily have the best ideas on what to do with a life-changing amount of cash. Even if they do have good ideas, some might not know how to follow through on them regardless of their income level. And we know that lottery winners are terrible at managing huge sums money. Why should we assume that poor people in Kenya would be very good at managing what, to them, is a life-changing sum of money?

Mrs. Done by Forty also noted that knowledge and guidance are things that, logically, should actually help if your mission is to give out money. Besides the cost of transportation and salaries, giving knowledge is relatively cheap: it costs nothing to have a conversation. Printing pamphlets or books or sending emails with helpful attachments, for all intents and purposes, is not that expensive. Why not give cash and guidance?

The Pushback
As you might imagine, traditional charities are not that receptive to this idea. The premise of GiveDirectly is that charities would better help people if they completely gave up their mission, their training, their staff, and infrastructure...and simply acted as a benevolent ATM machine. It challenges their very existence by suggesting that all the good things they do might simply be reducing the effectiveness of the money their donors provide.

The founders of GiveDirectly respond with a simple request. Let's see the argument for why a charity can do more with a dollar than a poor person can do with it themselves. Let's set up an experiment with a control group, and see which approach works best.  However, this sort of data is not easily available, and some traditional charities balk at the idea of using the recipients of their charity as a baseline in an economist's experiment. These are very poor people with real needs; throwing them into a randomized experiment might not be entirely ethical.

What do you think, readers? Can the simple idea of giving money possibly be the best solution? Or are the root causes of poverty simply too complex to be solved by handing out cash?

*Photo is from epSos.de at Flickr Creative Commons

36 comments:

  1. I believe charities can work best if they stay at a smaller more local level. I understand the need to grow and be able to do more good for more people. Unfortunately it usually leads to the organizations becoming bloated and more of the donations are needed for infrastructure and administrative needs.

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    1. That's an interesting take. Microcharities might have less waste, though I suppose they give up economies of scale, too.

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    2. Having worked at a large non-profit and now consulting with a few others, I would say the economies of scale are often eaten up by bulky overhead and loss of mission efficiency. When you have five layers between the executive team and the front lines, your front lines aren't terribly effective and the layers in between are even worse.

      On the topic as a whole, I have never seen cash given to a person in long-term poverty produce anything but instant gratification. I would favor direct cash donations to folks who are down on their luck - lost their job, got cancer, lost a parent, etc. These folks know EXACTLY what to do with an infusion of cash.

      But for long-term poverty, I would go the micro-loan route to spur small businesses and independence (kiva.org makes it doable for anyone, not sure if they offer the guidance piece that is definitely critical).

      Another excellent post!

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    3. Thank you, Emily! I worked at the Red Cross in my younger days (WIC Office) and I had suspicions about how our much our overhead ate into donations.

      I am a big believer in the micro-loans. Might this kind of charity be an improvement on that idea, if it were paired with the same due diligence of a loan application to vet that the money was going towards a possible long term solution (e.g. - small business)?

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  2. Oooh, I read the NYT piece by Adam from Planet Money this weekend, and have the TAM life episode downloaded for later this week but haven't listened yet!

    So here are my thoughts without getting the FULL story yet. =)

    I think it's very interesting, but I'll be curious about long-term effectiveness of the giving. How does "giving some cash to buy whatever they want" compare with "teaching a man to fish" or "buying a man a fish"? It sounded like a lot of the recipients bought a new roof (though one bought a wife!), but what happens the next time they need a big expense covered? Are they better equipped for that?

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    1. My wife used that same parable! I agree that something that creates a sustainable income is necessary. But I suppose the issue is whether we think the poor are more in need of being taught how to fish, or in need of a fishing rod.

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  3. I like the idea of giving the poor cash to start a business. However I don't think you can just hand over the money. Financial and business training needs to go hand in hand with the cash. This way these people have a better chance of doing something life altering with the money.

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    1. Hi Alexa,
      I see your point. Just handing over the money has substantial risks to the success of the endeavor, and knowing how to manage the money given seems like a prudent prerequisite. Though I imagine it's tough for a single entity to counsel the wide variety of potential businesses they might encounter.

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  4. “I am for doing good to the poor, but...I think the best way of doing good to the poor, is not making them easy in poverty, but leading or driving them out of it. I observed...that the more public provisions were made for the poor, the less they provided for themselves, and of course became poorer. And, on the contrary, the less was done for them, the more they did for themselves, and became richer.”
    ― Benjamin Franklin

    Although I think the Ben Franklin quote is more applicable to the US, as opposed to the extreme poverty in many 3rd world countries.

    I do think that many charities are a bit bloated and aren't as useful. During Hurricane Sandy, my friends who lived in affected area said that the Red Cross was no where to be seen and didn't seen to be of much use even though they had so much money which could make a difference.
    I put money into Kiva.org which lends money to small business owners mainly in 3rd world countries. I always thought that it was a great way to help them out of poverty. I like how you can read their stories.

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    1. Hi Andrew,

      That's really cool that you participate in Kiva.org. I hadn't heard that about the Red Cross & Katrina, but as a former employee I think I have a blind spot for them!

      And I agree with you on the application of the Franklin quote...it might fly better here at home.

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  5. Oh this is an interesting problem. I lived in a suburb with a high level of social housing, unemployment, drug and alcohol problems, and begging. I once was asked for money for food. Then again - by the same guy in the same trip - so I said to him (as I was in the green grocer), pick food, whatever you like, and I'll buy it for you. It totally stumped him - and I'm horrible to say, I'm not surprised it did. The assumption is that he wanted money for drugs or alcohol, not food. But people don't donate for beer! In the end he got some strawberries, but not before the store owner hollered at him, and got him escorted out, where he proceeded to continue to fight with a heavyweight from the store - it was all a little shaming! The store owner asked on my next trip 'need any strawberries' and I quipped that I didn't, and I stood by what I did.

    Anyhow, the past weekend, my church's fundraiser for charity lunch had the guest speaker say that over the next little while, they will move away from asking for money, and now asking for people, for wisdom, to guide the 'charity cases'. She had some great examples, of how, if you've never been told or taught things, you just don't know! A guy took a whole day off work (or study, can't recall) just to go to the bank. With a mentor, the mentor would have suggested going around work hours, or starting earlier or later, or in a lunch hour. This day off could have cost this marginalised person their job, and all for some not so common sense. It's definitely a huge can of worms you've opened, and that's great!

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    1. Hi Sarah,
      That's pretty cool that you bought the guy strawberries, but I'm sorry it ended the way that it did. Good on you for standing by what you did though.

      Your example of the gentleman missing an entire day off of work unnecessarily hits on what my wife found as the main flaw of the program. Just handing people money under the premise that they are the best steward of the funds, assumes that they will make good financial/business/life decisions.

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  6. I think that giving money as charity is sometimes a good idea, but only when you are giving the money for urgent needs and not as an investment. I always wanted to find a family that is in need - we have quite a few of these in Romania but strangely I couldn't find one yet - and offer them a chunk of money that would buy them food for the month and pay the bills. Sometimes that is enough and even though I think that the ending goal of charity should be that of giving a man a fishing rod and teach him how to fish, sometimes just catering to the basic needs might be just as good.

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    1. I agree that in the short term the basic needs have to be addressed first. No one's going to learn how to be an entrepreneur when their kids are hungry.

      And I really like the idea of giving money to a family in need directly...that's pretty cool.

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  7. I like the idea of giving directly to the poor. It cuts out the huge charities that often spend 80% on administrative fees. I'm all for that.

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    1. Hi Holly. That's an excellent point that I hadn't thought of. Giving directly to the poor removes the potential for an inefficient (or corrupt) charity to get their hands on the money.

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  8. Giving cash and guidance would be a great idea. I donate to a local charity team. I also do agree that few charity organization have been bloated which eventually eats up our money for their infrastructure and administrative purposes

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    1. Hi Rita,

      Yeah, as usual I think my wife may be right. Why not give money as well as guidance?

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  9. I'd have to listen to the podcast to get a broader perspective, but I think that in most cases, handing out money is a bad idea. I like the idea of micro loans better, because it establishes a work ethic that sets them up for the future, not just for the now. While I think smaller charities are better than big ones with a lot of red tape, I still think there is a reason for the infrastructure in that it can possibly disperse the money more effectively and make it stretch.

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    1. Huh, I hadn't thought of the benefits of the loan itself. When you know you have to pay the money back, maybe that instills a better work ethic and provides drive for the business venture to succeed.

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  10. I'm also torn on the issue, but I lean towards giving cash to the charities, not directly to folks in need. I'm more than happy to give items (requested by the folks in need) to them though. We participate in a Thanksgiving and Christmas dinner program, where we provide dinners to families who have registered with the program. We also work with the county to provide Christmas gifts for kids in need (we say we'd like to "adopt" a family of X, we get their wish lists and ages/sex, and wrap up presents - some families are not anonymous, and those usually get invited to a family dinner by other volunteers/givers).

    I think giving money directly is not necessarily a help. In some cases, it might be - someone lost their home because they lost their job or high medical bills - these folks just need a bit of help until they can get back on their feet. Then there are the folks that got themselves into the situation they're in (drugs, alcohol, etc), and just giving them money isn't going to help them, they'll just get back into the same situation if they haven't learned anything from it.

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    1. Hi there! That's a recurring theme I sense from the comments: when you give money you don't know how it might be used (or misused). Giving an item, like food, is foolproof...you can't freebase a turkey. And if you give money to a charity, there's due diligence and oversight which should prevent a lot of misuse, hypothetically.

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  11. I agree with some others that it would likely be more effective with guidance as well as donations (with guidance comes overhead, but I think a pathway for long-term solutions is key). On the GD site, it looks like there's an NIH study underway. I would be curious to see what those findings result in.

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    1. I'm interested to see the results of that, too, Anna. There's a big part of me that's rooting for the GiveDirectly argument to win out with the data. I want to trust that the poor are better aligned to know what they need and how to achieve their goals, because I like that narrative and it fits my worldview. I don't want to think that they need the benevolent & wise American charity worker to guide them...but maybe that's not the case.

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  12. Good stuff here, DB40. I have to start by saying that there are charities that keep admin costs very low, as should be the case, and I also have to say that, having grown up very poor, and having worked lots with the poor in different capacities, giving money, in general, just doesn't work. Most of the poor in this country are in a chronic mindset of poverty, and giving them cash would simply be a short-term burst of of lifestyle they'll likely never have but afterwards want even more. We need to educate them. They need to understand that there are ways to break out of the poverty cycle. Teach them to fish, as your wife and Mrs. PoP said. Best gift we could ever give them.

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    1. I tend to agree with you...I think the program might have more success outside of the US than here. Still, I want to believe in the idea as a whole...I think giving people money has promise.

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  13. I know the research supports it, so my brain wants to give money directly. But it just doesn't feel right. I know it should work, but I'd rather put my money in something like malaria nets, since I know they can't be used for evil.

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    1. Hi Cash Rebel,

      I know what you mean. Giving cash, no strings attached, requires a lot of trust in your fellow man. Giving tangible goods satisfies our risk averse tendencies.

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  14. I certainly think it's possible that this is the best solution and I'm glad that someone is giving it such an honest effort. I understand the sentiment behind the arguments against it, but it feels arrogant to automatically assume that "we" know more about how to improve someone's lives than they do.

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    1. That's how I feel, too, Matt. I feel the notion that we know better than the impoverished about not only their own situation, but the solution to it, seems arrogant. I'm sure there are plenty of poor people who would make poor use of the money. But, and this isn't meant to be insulting, but isn't possible that the American who can barely speak the language, & who has been there for less than a year, is way more likely to make poor use of that money?

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  15. I guess I sort of do this. I've given poor friends money when they were in a jam. I give people extra money during the holidays who do work for me (like daycare person). I always give a week's pay and she always comments on how generous it is. It's supposed to be a standard rule of thumb but I think I'm the only person at the daycare who actually gives cash. I hand down my kids stuff to other people. I am just trying to pay it forward now that I have means to do something extra for people. I think just helping the people in our inner circle can do worlds of good. You don't have to save the world all at once.

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    1. You sound like a really generous person, First Gen. Sometimes charity really does begin at home, and then radiates outward. Lots of ways to give locally.

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  16. I have been helping people for the past 23 years with burial monies ; not much but small amounts because I have never had any thing but low paying jobs. At first people thought I was stupid and in fact several
    higher ups said they felt sorry for me and I have been looked down upon for helping the people that I help. I created a project it has never been incorporated or set up for a non- profit organization because I can't afford to throw money away because of people in need however I have dreams of being self supporting one day. I think when banks do a credit history they feel that you can't make a payment on minimum wage job so they refuse loans. If someone were to give me money to help I would do something big like buy some ground and build a place to gather for a funeral that would help with emotions and focus on recovery all donation are welcome.

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    1. That's a pretty cool charity idea, Dink. God bless you for the work you're doing.

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  17. Hello Everyone,

    I am helping a friend of mine raise some money to pay bills after a long period of no work. He made a blog, please stop by and help out a bit. Every little bit counts.

    Thanks Everyone..

    Here is his blog: http://donatemoney-helpsomeone.blogspot.com/

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  18. I also feel that big organizations like charity organizations are spending quite much on administrative expenses... leaving less amount reaching the vulnerable population. However, it seems that it is the only model that can work. But direct giving when it is channeled out properly, it can cut back on such costs and help the poor population get back on its feet.

    Personally, I'm in a situation where i need donations. I have been jobless for close to 8 years. I have a bachelor's degree and its like my education is going to waste. However, i am now beginning to put things in order. Following my state of joblessness, my student loan has topped close to $9,000. You can imagine how difficult it is to get over this. My income is not less than $200 per month. This leaves me with nothing to pay this loan. But it is supporting the family. The most difficult thing is how do is get out of this debt?

    I didn't ever imagine i could even beg for donations... but i have learnt that situations can arise when you least expect. Anyone reading this comment can as well drop by my campaign and try to assist. It does not have to be donation but even sharing it to friends and encouraging others to assist me can go along way.

    I have decided to fund-raise through:https://www.indiegogo.com/projects/close-to-10-000-education-loan-crippling-me-down

    Thank you all....

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