UHNWI’s & Charity

With great wealth comes an increased sense of obligation to give something back. Many UHNWIs through either building or inheriting their own wealth, reach a point where they realize that amassing countless possessions and spending lavishly on themselves does not make them feel happy –  that true joy can be found in giving to others, not receiving. Once this point is reached, the UHNWI will likely donate a portion of their wealth for philanthropic purposes.

Many of the wealthiest people in the world are the largest philanthropists as a result of this. Warren Buffet, the American business investor, is credited with donating approximately 30 billion USD to charitable causes. Bill Gates, the co-founder or Microsoft, has his own “Bill & Melinda Gates Foundation” and has donated approximately 29 billion USD to various causes.

In fact, it has been proven that when we give to others, our brain reacts in a similar manner to what we experience when we eat chocolate. When we spend money on ourselves, there is little to no change to our base level of happiness, however when we give to others, we experience an increase in happiness and feel a warm glow. Clearly, there is a link between charitable giving and pleasure which reaffirms the old saying that it is “good to give”.

However, it is not enough to just give blindly. If you would like your contribution to make a positive contribution to the world then it is of vital importance to ensure you are donating your money in the most effective manner possible. It is important to do some research to decide which cause you would like to target, and then which charity you feel will make the largest positive contribution to this cause. This article will help to guide you in what to look for in a charity and what to avoid.

To begin with, in general it is a good idea to avoid celebrity or athletes’ own charities like the plague. Many of these charities are set up by the celebrities as vehicles to avoid tax rather than with the intention to do any good. Lots of these celebrities will use the donations to fund projects which indirectly benefit themselves whilst boosting their own public image. Large percentages of the donations will also be used to cover the legal fees, consultancy fees and the publicity costs. If a celebrity has undertaken a huge media campaign with TV adverts, etc. to advertise their own charity, be aware that they are promoting themselves and their brand in a positive light and are likely using a large percentage of the donations received to do so.

Of course, there are exceptions to this rule. It is a good idea to take an unbiased look at the celebrity and ask yourself whether they really seem invested in their charity’s cause, or whether they seem more interested in making themselves appear to be invested in their charity’s cause. If their own name and brand is plastered all over their charity, be wary that it is likely an exercise in self-promotion rather than humanitarianism.

Another pitfall that donators fall into is to donate to their local school’s charity without first researching the school’s chosen causes and beneficiaries. Schools are often not the most efficient spenders of funds and unless they are renowned for their charitable contributions, it is going to be better to donate to a dedicated charity with a good track record of funding humanitarian projects.

Many of the larger charities will employ people to approach you on the street and ask you to donate to their cause. In general, it is not a good idea to sign up and donate via street approaches. Not because they are untrustworthy, but you should always ask the person for their registered charity number just in case. The reason you should avoid donating when approached in this fashion is that it is likely a large proportion of your donation will be used to cover the charity’s costs. The employees who approach you are usually not voluntary but are paid a salary. In addition, there are numerous legal hurdles to overcome in order to be authorized to approach people in the street and ask them for money. The employees’ wages, plus the legal fees, will be paid for by using a large percentage of your donation. Your donation would be more effective if paid to a charity whose overheads are lower – those who ensure a larger proportion of your donation goes to directly supporting their cause. With all of these potential traps, it is important to seriously consider the values that one should look for in a charity prior to donating.

Research is vital before investing in a charity. Many people will donate to the most popular charities such as Oxfam without looking into the alternative possibilities. Although this is still better than donating nothing, without performing the research you cannot be sure whether your donation would be better spent and contribute more to society if made elsewhere. You would not buy the first car you came across and the same principle should be applied to charities.

A mistake many donators make is that they choose a cause that they would like to invest in and then blindly donate toward the biggest charity they find with the same cause. Once you have chosen a cause to invest in, you then need to decide which charity will best know how to spend the money you are donating. There are numerous factors to consider in order to determine this.

Firstly, you should research the positive changes the charity has made so far. Most charities will keep an up to date record of all their humanitarian achievements. If a charity has accomplished little, you will be making a risk with your investment as they have not yet proved themselves capable of spending their donations wisely. If you are very trusting of a new charity then you may give them the benefit of the doubt, but in general your investment would safer with a charity with an established track record.

In particular, you should look at the charities accounts and determine how much money the charity spends on administration, marketing, operational expenses and legal fees. If the percentage of money spent by the charity on actual charitable causes is less than 60%, you should probably look to donate to a different charity. An exception may be if the charity is new and the advertising expenditure is necessary for long term growth.

A particularly interesting task you can perform is to find out how much the CEO of the charity awards themselves for their salary. If the CEO is paying himself a very high salary, then you can likely deduce from this that the charity is seen as a profitable business rather than a catalyst for good. On the other hand, if the CEO only gives themselves a very small salary, then it is likely the charity is a labour of love for them and that they are passionate about donating as much money as possible toward their cause rather than toward themselves.

Outside evaluations of charities by journalists and scholars are a good source to help you decide whether a charity is a good investment for your donation. There are also numerous websites which have been set up in order for you to research charities. Charity Navigator, GiveWell and CharityWatch are all good sources.

Once you have made an educated choice regarding which charity you would like to donate to, there are a couple of things to look out for. If donating the money via a website using your credit card, it is important to make sure the website uses credit card encryption technology to prevent being the victim of credit card fraud. It is also important to get a receipt from the charity as you can claim back tax on your donation.

It is not the aim of this article to dissuade readers from charitable endeavors; readers should be not hesitate to donate, but rather fully research their options before entering into any transaction. It can be somewhat difficult for those who wish to take their first philanthropic steps to find informative guidance, but perhaps some will now conduct their own research. Such actions will ensure that their donations are going as far as possible in order to support the cause of their choice. Giving to charity helps improve others’ lives, as well as your own, through an increased sense of happiness and well-being. It really is true that it is better to give than to receive.

Posted in Editorial.

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