06 May The Art of Giving Back
In America’s new Gilded Age, the top one percent owns 40 percent of the nation’s personal wealth. The next nine percent owns 35 percent of the wealth, and the remaining 90 percent of the population splits the 25 percent that’s left. The current income disparity surpasses even that of the Roaring 20’s.
Regardless of your politics, the trend is not good for the long-term health of our economy. Democrats and Republicans differ on how to address the rising inequality, and I’m not trying to propose social policy here. My purpose is to ask: What can people fortunate enough to be at the top do to make the situation better?
Everyone Has a Desire to Help the Less Fortunate
Most of my clients are in the top one percent or are well on their way, and something they all have in common is a desire to help. In fact, a 2012 study by Bank of America indicates that American millionaires give away an average of nine percent of their incomes. More than half of them also donated more than 100 hours of their personal time. Another study by the Chronicle of Philanthropy shows contrary data, indicating that high income earners give a smaller portion of their income than the middle class. The good news is both studies show a desire to help.
Warren Buffett and Bill Gates have taken this further by pledging to give away more than half of their staggering wealth and are encouraging other billionaires to do the same. Buffett once said, “I should write a book on how to get by on $500 million because apparently there are a lot of people who don’t know how to do it.”
A few ideas on what the wealthy can do:
- Education is the pathway to a better future. Ivy League schools have more than enough money in their endowments to last many generations. Instead, consider donating to lesser-known colleges and funding scholarships. The money will likely be put to work immediately and not sit idly in some large endowment.
- Volunteer in ways that help others succeed. For example, there are non-profit organizations like SCORE that help small businesses get off the ground. Business leaders who volunteer for SCORE mentor new entrepreneurs.
- Start a business and hire people, or fund a promising start-up. Sure, most will fail, but they create jobs and some might turn out to be a home run. Micro-loans are another way to achieve similar benefits. Business owners, often vilified and sometimes justly so, are also unsung heroes as they take significant risks and hire people.
- Give to organizations that make life better for children. Research shows that childhood experiences, whether positive or negative, greatly influence adult outcomes. The odds of succeeding are stacked heavily against poor kids. Childhaven and Treehouse are great examples of organizations that help even those odds.
- Don’t get stuck worrying whether your money will be put to good use. Most charities use your money wisely. Go to Charity Navigator to perform due diligence.
- Err on the side of giving too much. How do you know if you are giving the right amount? As soon as you feel like you might be putting yourself in financial jeopardy, I believe you are on the right track.
- Reconnect with childhood friends for better perspective. Typically, as wealth increases, people spend more time in their own socio-economic peer groups and this can skew their worldview. Another familiar way to put this: Remember where you came from.
- Ask yourself: do you own your stuff, or does it own you? I regularly see people get so bogged down by all their houses, trips, and toys, they lose the freedom or time to do anything outside of their own routine. Money has a way of distracting us from what’s important.
Start a Legacy or be a Philanthropist?
Wealthy families sometimes struggle with the decision to start/continue a legacy for future generations or give the money away now to charity. One quote that really resonates with me from the movie The Descendants is “give your children enough money to do something, but not enough to do nothing.” I think families can successfully participate in philanthropy while also preserving funds for a long legacy. Philanthropy is often the medium families use to learn how to work together. Philanthropy also builds empathy and compassion.
The Family Bank
One of the more interesting ideas for addressing a family’s legacy is to create what is called a “family bank,” a pool of funds used to fulfill dreams while encouraging self-sufficiency. For example, family members can borrow money or receive grants from the family bank for tuition, a down payment on a house, or seed money for a business. Family bank money can help supplement the income from a lower-paying but personally fulfilling profession like teaching, or it can allow one spouse to stay home with the kids. The family bank makes wealth less about each individual and more about the family as a whole. It also moderates the complications that come with having access to large amounts of money that wasn’t earned.
The Duty to Give Back
John F. Kennedy once said, “For of those to whom much is given, much is required.” Bill Gates’ mother told him the same thing and he appears to be following her counsel quite effectively. This concept can also be found in Biblical texts. Many people sit back and wait for social policy to change, or fall into the trap of being cynical and blaming all the world’s ills on “the other side.” In the meantime, real suffering that doesn’t have to happen continues and society becomes more divided. Since the top 10 percent controls more than 75 percent of the wealth, much is expected of this group. Now is the time to step up. What are you going to do?