What Would You Do With $70 Million?

obmar · What Would You Do With $70 Million?

http://freakonomics.blogs.nytimes...hat-would-you-do-with-70-million/

April 15, 2008, 10:37 am
What Would You Do With $70 Million?

By Sudhir Venkatesh

This is the dilemma faced by Michael, a 31-year-old who will soon inherit a large sum of money.

For reasons that the truly wealthy will immediately understand, Michael has been advised to set up a foundation. “I have to donate about $70 million over the next decade,” he laughs. “Or maybe it’s $50 million. I can never remember.”

I occasionally advise young philanthropists, and so Michael asked me for suggestions. But, as an avid reader of this blog, he wanted me to ask the Thugz and you (the general readers). You may recall that I watched season 5 of The Wire with the Thugz a few months ago. Michael enjoyed my discussion with the ex gang members and he wondered what they would do with the money.

He also liked the irreverent, witty humor displayed by the readers of the blog.

I met Michael at Harvard, in the late 1990’s. He was part of a small group of twenty-somethings who came from very privileged social backgrounds.

They were “blue bloods” who fit the classic mold of the upper-class Northeast W.A.S.P.: educated in private schools, raised in Manhattan, summer homes in the Hamptons and French ski resorts, fitted with all the dressings of American aristocracy.

I spent a few years observing their maturation. It was a fascinating experience that I am hoping to write about in my next book.
INSERT DESCRIPTIONPhoto by Alix Smith.

For those who are interested, this American tribe has been captured beautifully by Alix Smith, a photographer raised in this insular world. Her website reveals her peers in sharp, stylized portraits.

If he followed the traditional path, Michael would set up a charity, and then donate about 3 to 10 percent of his endowment each year. But, he says he wants to exercise his charity in a slightly different way:

1) I want to give it all away in ten years.
2) I want to give it away only in the U.S. — I can’t stand these people who give money overseas when we need it at home.
3) I won’t give a penny to schools. I think its unconscionable that Gates is paying for schools; that’s the government’s job.
4) I don’t want to give anything less than $1 million at a time. Meaning, no small grants.

I’m going to ask the Thugz for their comments, but what say you?

obmar

......

http://freakonomics.blogs.nytimes...and-the-70-million-problem-redux/

April 24, 2008, 2:37 pm
Michael and the $70 Million Problem (Redux)

By Sudhir Venkatesh

Michael and I looked over the 500 plus comments and suggestions that were generously offered regarding his upcoming dilemma:

How should I give away $70 million?

We were joined by his sister, Cathy, who also has a “small sum of money” (her words) that she needs to donate in the coming decade. Apparently, she will have to give away “only” about $45 million.

The three of us were overwhelmed at the number of thoughtful responses. Michael and Cathy’s specific reactions are presented below. We all agreed that the discussion should be continued.

Most of their friends won’t receive their trust-related disbursement for a few years, so I offered to bring together other privileged twenty- and thirty-somethings who might be looking to give away large sums of money to charity. If any aristocrats in the blogosphere would like to join me for a discussion, I invite you to e-mail me and come to N.Y.C. Don’t worry, I’ll pick up the tab for coffee and lunch.
PhilanthropySudhir titled this photo “Philanthropy.”

I also shared with them the suggestions of “The Thugz,” the group of ex-street hustlers/gang members with whom I watched season five of The Wire. Shine and the others laughed when I asked them, “How can Michael use his charitable dollars most effectively.” They all wished they had this problem. Their replies echoed some of their earlier thoughts on the state of modern society:

SHINE: Like we always tell you, Sudhir — a man wakes up in the morning in most poor places, and his first problem is, “What am I going to eat?” He has to feed his family. Lots of people don’t realize that if you can’t eat, your whole day gets messed up.

I can’t tell you how many n– -s do stupid shit because they couldn’t get no food. Lot of people rob and steal to put some food in their belly. Make sure people got food. A man stops feeling angry against the world when his belly is full. That’s what I’d tell the brother to do with his money. And, make sure the older folks got food, not just the kids.

ORLANDO: Get them guns off the street. And, I don’t mean just around here (New York City). I mean go where them white folks live — New Jersey, and places like that.

If brothers want to fight, they should do like they did in the old days: with their hands. You get guns off the street, you’ll get rid of a lot of problems. I agree with Shine, people have to eat. But, there’s always going to be angry folks. The problem is when they start shooting each other.

TONY-T: The suburbs. My cousin grew up there. Went to college. Ain’t learned a thing. Tell Michael he should pay these kids to go do something so they can really learn what life is like.

Instead of going to college, pay them to go fix a house, or hang out with hustlers who struggle out here. I’ve been to the suburbs. You got some seriously ignorant people out there who need help.

KOOl-J: You want the truth? I’d make it a law that if people get money when their parents die, they have to spend ten years doing some kind of free work. You know, like what I had to do after jail: clean up the streets, paint buildings.

I sell a lot of dope to the rich kids, so I know what they’re like. They got a lot of time, and they don’t do nothing! That’s a crime. Make it so they can’t sit around all day, snorting coke. If they want their money, they have to get up off their a–. Like Michael is doing.

Michael and Cathy both admitted that their peers had relatively little pressure to make a “positive societal contribution.”

You grow up like I did, and it’s all so easy,” said Michael. “And, your parents really don’t think a lot about what you need. I mean, every time I had a problem, my mom wrote a check. My dad was never around.

“Right, and when Dad wasn’t around, his secretary wrote us the checks!” laughed Cathy.

So, I spent six years getting high, doing coke and feeling horrible about myself. Kool-J is absolutely right. There’s no one who teaches us what our responsibility is. And, now, I have to give this money away. But, how?! I really struggle to figure out where to begin.

I mentioned several options, including giving money to an established foundation and making a career out of philanthropy, as opposed to simply writing checks. Or, why don’t they draw on experts who help the rich give their money away?

Honestly, when you work with consultants, the first thing they do is make sure you don’t see what is really going on. If I have to see another brochure about a kid who beat the odds, or attend another party where my friends get applauded … It’s sickening, I don’t want consultants to protect me from the outside world. My parents already accomplished that.

Cathy continued by turning the lens inward. She pointed to GiveWell, an organization that she felt understood one of the central problems for her generation.

I’d like to help other people I grew up with first. I know that sounds crazy. If I tell you I’ve got hardships, you’ll laugh, right? I mean who really believes we have a hard life? The problem is that we have resources, but no direction. My friends like this group called GiveWell because they sort of get how we think, they understand where we are coming from. I would like to get to my friends just after they graduate, right when they start having problems — drugs, depression, getting bored. That’s the time I think I could help them. But, I still don’t know how, exactly, to do that.

“I know what I don’t want to do,” shouted Michael, spilling his coffee on his lap. And, at this point, the conversation turned to the comments of Freakonomics.com readers:

I will never act like I know better how people should spend their money. The one thing I can’t stand is when my friends give away money and then write a report card. At some point, I think you just have to trust that the money is doing good.

My friends give away millions, and all they do is b–ch and moan that they didn’t get the results they wanted. What did they expect? To end poverty overnight? They all want this oversight, but frankly it’s all armchair complaining.

Michael liked the suggestions regarding assistance to hospitals and medical clinics. He felt passionate about making sure people had access to good medical care: “I agree (with johnjac, #60). People shouldn’t die because they couldn’t get to a hospital.”

He wanted to combine health-related philanthropy with an approach to solving hunger in America.

I think that Debra (comment #380) is thinking like I am. I’d like to create a place where you come in, get a meal, get checked out, and get medical care. One stop. I’d also like to make sure we end hunger in this country. I think Shine is right: you can’t function if you’re hungry.

But, he quickly made the point that U.S. needs deserve priority over international charity — a point contested with great passion by many Freakonomics.com readers.

I can’t believe all these people think we should first give outside America! That’s exactly the problem.

I go to the Hamptons, and they have these stupid fund raisers for things going on that are thousands of miles away. And, then you go back to 5th Ave (on Manhattan’s Upper East Side), and you tell your doorman to make sure no homeless people ask you for money on the block. It’s sick.

Michael suggested that the government force rich, new philanthropists to give only in their own town or city. “Give locally. That way you’ll be forced to see the pain close up. And, you’ll see you can’t fix it overnight.”

“So, you’ll be giving to whom exactly? The poor child at 84th and Park?” I said with just a hint of sarcasm.

“No, but maybe I could give to their maid or nanny,” he quickly retorted. “She is getting $5 per hour, and is probably getting treated like crap!”

Cathy chimed in.

A lot of people (on the blog) talked up the idea that we should be social “entrepreneurs.” I disagree. I don’t like it when people like me give money away to get a return on their investment. That’s disgusting. I didn’t do anything to get rich, so why should I deserve to get anything back? And, I think that the micro-lending people also do the same thing. Give a dollar, get back 30 cents. Wow, that’s not charity, that’s selfish.

Michael felt similarly, but moved the conversation in a different direction — along the lines suggested by comment #299.

I like the idea of having people do things like building roads, or teaching the poor. But, I don’t like the Teach for America program. Two years, and then you go and work for Merrill, feeling good that at least you tried to save the world.

For God sakes, do it for longer. And, I think that people should do it differently. Maybe they have to teach for a year, go to work at Merrill, and then come back after five years. Then go back to being an I-banker, and then teach again. This way, you have to reconnect, and feel the pain of the world around you.

Michael kept saying “feel the pain” throughout the conversation, so I asked him what his next steps would be to get out of his insular world.

He said that he’d like to take a car and drive around the country and talk to people for a year. “I know I would prioritize hunger and hospitals and things like that. But, maybe I should get to know what’s out there. For a year, I’d like to feel my way around.”

Happy trails. Stay tuned.

obmar

July 7, 2008, 1:17 pm
The Price of Advice: Chronicles of a Young Philanthropist, Part III

http://freakonomics.blogs.nytimes...hilanthropist-part-iii/#more-2795

By Sudhir Venkatesh

Readers of this blog might recall my earlier posts about Michael, a young man who is expecting to donate about $70 million over the coming decade.

In the last six months, Michael has committed himself to understanding both the responsibilities and challenges of philanthropy. There was some interest in his progress among Freakonomics readers, so I thought it might be good to follow him around for a while.

Consider this a “blog alert,” if you will.

Some background: I met Michael at Harvard over a decade ago, when I began a study on the young and wealthy in their twenties. Michael was a junior at Harvard College and so he didn’t fit into my protocol.

Last year, Michael called me because I had advised a few of his wealthy peers who were forming family foundations. I’m no expert in wealth management and I initially turned down the offer to give advice. But on one point I thought I could be useful.

I knew that philanthropy is most effective when the donor has a clear understanding of his/her own role and can answer the question, “What is motivating me to give?” After completing my research on a sample of elite twenty-somethings, I noticed that few people had a clear sense of their self interest — most people explained that they want to change the world. While there is nothing wrong with this motive, it’s predictable.

I told the three people who came to me for advice that, in my opinion, prospective donors had two traits working against them.

First, they confused charity with commerce: that is, they uncritically applied the language of outcome-oriented investment to efforts to change human behavior in social settings. Humans, alas, don’t operate neatly according to market logic, though incentives can shift behavior.

Second, donors seem reluctant to talk about their own self interest. Instead of admitting their personal desires, they speak of selfless charity. Of course, donors can do whatever they want with their money, but this attitude doesn’t help them grow.

The three donors asked for my help in crafting a strategy for alleviating urban poverty. I agreed to work with them for one year, but with conditions. Most important, they had to arrive at a “loss figure” — a sum of money that they would give away (to actual causes), but which would be entirely devoted to their own learning.

They had to forgo any serious outcome-based evaluations of the families/service providers who received their support. (They turned over the management of the grant to a donor-advised fund.) Instead, they had to privilege and pay attention to their own development.

At the end of a year, we would reflect on the impact of their philanthropy: we would talk about their experiences, their sense of how their money impacted the families, etc.

The catch: whether they liked the results or not, they had to provide a second grant disbursement to the organizations (contingent on the fiscal responsibility of the recipient grantees). I felt this freed them up from the expectation of evaluating anything other than their own personal transformation. The three donors agreed on a “loss figure” of $500,000, meaning they would each give $1,000,000.

I did not receive any compensation. I was interested in accessing a world shut off to scholars. So as in the past, I only asked that they speak to me at least over a ten-year period, so I could track their stewardship of their respective family foundations.

The year-long process taught me a lot about the civic sensibility of the modern American elite. Perhaps most illuminating: the donors had very rigid ideas concerning the capacity of poor people to change their behavior. When they met poor families (in Chicago and New York), they expected that their money would have magical powers. I exaggerate only slightly.

They believed that poverty was largely a result of resource deficiencies and organizational inefficiencies: if the poor had more money and their service providers could simply manage their giving more efficiently, change would happen. None placed much emphasis on feelings of self worth, the long-term nature of behavioral change or, most important, that staying above water is itself an accomplishment for a poor household. Everyone modeled their expectations after their family business or other corporate workplaces where they saw the “bottom line” motivate people to meet certain standards of achievement.

Over the year, about two dozen poor families welcomed the donors into their lives. They opened up their household budgets; they were candid about their illegal activity; a few shared their private journals. The conversations were moments of honest self reflection.

Over dinner, the donors told poor families (sometimes angrily) that they expected change to occur more quickly; the parents around the table educated them about what kinds of change can reasonably be expected. For their part, the poor received an intensive dose of market logic, and many now use incentives in the home to motivate family members. Privately, the donors admitted uncertainty about the capacity of philanthropy to change people’s behavior. Along the way, each wondered whether they should give up and focus on other pursuits.

I don’t think any of the three donors became enlightened after the year was over. I doubt I have much of a future in professional consultation.

The three individuals continue to operate family foundations, but they all reacted differently to the intense exposure to daily poverty. The one consistent outcome is that each remains true to the philosophy of entrepreneurially-oriented investing: i.e., the use of incentives, emphasis on individual responsibility, pursuit of investment-oriented gains on charitable giving, etc.

I might point to one other result of this process: the donors came away with a much better sense of their own assumptions/stereotypes. They had to think as poor people do, even as they tried to change poor people’s thinking.

For example, they learned that poor families who have access to small amounts of cash — as little as $20 — can stave off problems that might otherwise spiral out of control. (Previously they dismissed the utility of using such small sums for change.) Of course, credit unions have long understood this — and one of the donors is now helping to fund organizations that replicate this strategy in New York.

They also learned that, in some cases, process is as important as outcome. For example, service providers who keep families together — despite dramatic improvements — are playing a valuable function in communities where things always fall apart. And even if a child’s grades don’t improve, sometimes staying in school is a huge mark of success for the family.

All of this brings me back to Michael. When he asked me for advice, I said no. I was only interested in tracking his progress objectively. I told him to consult a few experts.

Then he asked about my experiences with the three donors and he actually spoke with each of them. One evening he phoned me excitedly and asked that I run him through the same paces. When I asked why, he laughed:

Each person I called told me they had more anxiety giving their money away than running a business. I’ve been losing sleep for a year trying to give this damn money away. They all said that the year (with you) was mostly about figuring out what they wanted out of the deal. I think I need that.

I told him I would consider it, but I suggested that he begin by taking the advice of professional experts — firms with accomplished track records in money management and charitable consultation. This led to an agreement: before we decided to work together, he would invite the counsel of professional experts. (Recall that he has already asked for suggestions from readers of this blog as well as “The Thugz” — the guys with whom I watched season five of The Wire.) And if we did work together I would receive no compensation — only the freedom to document his experiences.

He has retained three professional advising firms. The cost is not cheap. He is paying three consulting firms a total of $19,000 for three independent assessments. (Each assessment comes with a conceptual plan that can guide Michael over the next ten years, as well as a practical description of the firm’s services during that time period.)

Each firm was asked to respond to Michael’s stated desire to “be involved and learn from charity.” Michael made it clear that he was interested in the process of giving; he wanted more than a simple update every six months about the status of his money. He asked each firm to provide him with a strategy for learning along the way.

In two weeks we should have the results.

Finally, because I couldn’t resist, I asked Michael to throw a little business to my friend Dorothy, who offered to provide him with a similar game plan. Dorothy has helped me with field research in Chicago’s ghettos for years, and her voice has filled these pages on several occasions. With no prompting from me, Dorothy said her fee would be $275 ($225 plus bus fare to visit a few poor communities in the suburbs). I wonder if I should tell her what the firms are getting paid!

The three experts that Michael consulted asked that I not identify them, but they were all gracious enough to allow me to quote anonymously from their work.

Stay tuned.