Is legacy fundraising actually higher leverage?

By Benjamin_Todd @ 2015-12-16T00:22 (+4)

It's often been pointed out that legacy fundraising (asking people to make a commitment to give in their will) has a much higher return than other types of fundraising.

On average, $1 spent fundraising raises about $4.

$1 spent on legacy fundraising, however, raises about $30.

This is taken to be a reason to focus more on legacy fundraising.

However, it just struck me that this is wrong. (Apologies if this point has already been made elsewhere).

With legacy donations, you only get the money a long way in the future. If you persuade someone who's 40 with a life expectancy of 80, you'll get it in about 40 years. If you persuade someone who's 20, you'll get it in about 60 years, or perhaps longer. With normal fundraising, you get the money pretty fast - often nearly immediately, or otherwise over a couple of years.

Money in the future is less valuable, so legacy commitments are less valuable.

Let's quantify the effect. Rather than getting a legacy commitment, you could raise money now and invest it in the stock market. If you do that, you could grow it at about 5% per year (real returns).

$1 invested in short-run fundraising generates $4.

Then $4 invested at 5% for 40 years will be worth $28.

And that's about $30 - what you would have got from the legacy commitment.

So it looks like the extra returns of legacy fundraising are fully explained by the fact that you have to wait a long time for the money. It isn't actually a more attractive method of fundraising.

 

Moreover, there's reasons individual effective altruists and organisations might want to use a discount rate even higher than 5%. If you do that, or if you raise legacy commitments from people under 40, legacy fundraising is going to be substantially less attractive than regular fundraising.

undefined @ 2015-12-16T01:52 (+9)

I've seen this discussed before, but not formally laid-out.

Do people who legacy fundraise not regularly, uh, strategically engage with more senior individuals in order to generate donations in the nearer future?

undefined @ 2015-12-16T06:40 (+3)

Right. I'd be surprised if legacy fundraisers spent much time with people under 60, let alone 40. This isn't just about generating money in the nearer future, but also that the older contingent will have more attention for their legacy.

David_Moss @ 2015-12-16T12:43 (+5)

Yeh there are a few stats in Charity Science's shallow review of the area. One study found that 87% of money from bequests came from people who wrote their will in their 70s/80s, and 76% from people writing in their 80s.

undefined @ 2015-12-17T00:02 (+1)

This also reduces the risk that they will later alter their will.

David_Moss @ 2015-12-16T08:18 (+1)

Yes, that's absolutely right, and one of the first things to bear in mind when thinking (or commenting) about legacy fundraising.

undefined @ 2015-12-16T14:34 (+2)

Hi David,

This comment felt quite snarky to me. I did apologise in case this point had been made before.

I agree the fact that the money comes a long way into the way is obvious, but I've never seen a quantitative examination of it before.

Looking at Charity Science's review, I don't see one. Glancing at the calculation of expected returns of EA legacy fundraising, it looks like no discounting was done at all, so the 18:1 expected ratio is overstated by at least several fold. I expect if they added discounting, it wouldn't look much more attractive than other fundraising methods, and a whole project was launched on the basis of this report. The report also mentions that young people contribute a significant fraction of the EV, but I expect this would go away if discounting was included properly.

http://www.charityscience.com/uploads/1/0/7/2/10726656/legacy_fundraising_pdf.pdf

David_Moss @ 2015-12-16T16:24 (+4)

My comment was agreeing with Claire's observation that "people who legacy fundraise... strategically engage with more senior individuals in order to generate donations in the nearer future"- nothing to do whether whether your "point had been made before" because it's directly referring to Claire's point.

I'll address these new points you raise about Charity Science's projected ratio in a separate comment if no-one from Charity Science gets there first since they're quite distinct from the point above (after all, you don't mention Charity Science in the OP).

undefined @ 2015-12-16T22:36 (+2)

Sorry I misunderstood. I noticed several downvotes for the post so interpreted your comment as directed at the main post.

undefined @ 2015-12-16T07:59 (+2)

Is the following another way of making a similar point?