Philanthropic Frugality Can Cost You Money
Misguided frugality can quickly sink your philanthropic ship.
All philanthropists — whether they are a foundation leader, donor, professional athlete, corporate executive — want to be good caretakers of their charitable wealth. They want assets to grow and costs to be reduced, so there’s more money to give away.
The trouble is, in their altruistic effort to be frugal, they hold back on investment in important things like research, evaluation, strategy development, talent, technology and even personal learning. They hold back investment in grantees, too.
They do this by setting arbitrary limits on how much money can be spent on nonprofit overhead. Or they do it by insisting on evaluation results without funding the cost of evaluation.
They genuinely want their philanthropy to change the world, but they’re under a misguided belief that saving leads to impact. And they’re delusional about the damage caused by their thrift. As I’ve said before, delusional doesn’t mean crazy. Not at all. It means deceptive, even distractive. And these delusional thoughts about frugality can be destructive.
This type of destructive frugality happens to all types of philanthropists. For example, a nonprofit requested a three-year policy advocacy grant from a donor to advance an innovative approach to drug treatment. The donor, however, authorized a grant of only one year, believing this was the fiscally responsible thing to do. But, as you know, influencing public policy can require consistent effort over the course of years. These efforts include conducting research, raising public awareness, organizing residents, educating the media and meeting with policymakers. These efforts take time.
Because the program lacked a realistic three-year funding commitment, its CEO couldn’t hire top talent. The experienced person she wanted wouldn’t leave her current job and risk her family’s financial security for a one-year gig. So the CEO hired someone less experienced.
The donor saved money up front, but they did so at the cost of talent and program expansion. They saved money on the wrong things. They were under the delusion that they were being good stewards of their philanthropic assets by tightly doling out funds in one-year increments. Instead, they were getting in their own way.
So, why does this happen? Part of the spell of delusional altruism is a scarcity mindset. Yes, you heard that right. Despite access to wealth, philanthropists live, work and breathe with a scarcity mentality.
A scarcity mindset is the misguided belief that maintaining a spartan operation delivers more value. It’s a belief that, by not investing in their own capacity, talent, research, learning, strategy, technology, effectiveness and infrastructure (or that of their grantees), funders can allocate more money to the causes they support and therefore achieve greater impact.
Surprisingly, the scarcity mindset has little to do with money. It has everything to do with belief.
Scarcity-minded donors believe that investment in their own operation is only warranted when the need is urgent. They limit their opportunities based on current capacity, not potential impact. Improvements they make, therefore, are only incremental. They feel they should always do more with less. In fact, they often believe they don’t deserve what’s best, fastest or most efficient.
I believe this scarcity mentality is one of philanthropy’s most detrimental self-created limitations.
Why does it take root? There are several reasons. Two examples discussed here show that philanthropists have a misguided mindset and that philanthropists don’t invest in people.
Let’s Talk About Mindset First
A scarcity mindset is the lens through which many donors view their philanthropy. It’s important to understand that this is a belief system. It leads philanthropists into believing that they are saving money. They believe that less invested in talent, infrastructure and knowledge means more to help others.
But this is wrong. And it plays out in a lot of ways.
For example, too often philanthropists feel they don’t deserve to … fill in the blank: invest in themselves, retain an executive coach, fund a needs assessment, attend a conference, improve technology resources, hire top talent, spend time learning, share their accomplishments publicly, learn how they can advocate for policy change or fund an evaluation.
Why? Because they have a misguided belief that all of their money should go to “help others.”
This belief might appear noble. But in reality, it’s delusional. To have the greatest philanthropic impact, philanthropists need to be the best they can. This requires time and resources to understand the self, to understand the issues and communities concerned and to build philanthropic muscle and know-how.
Here’s an example. One donor’s philanthropic assets were about to quadruple because of the sale of a business. Instinctively, he knew to prepare for this by clarifying his philanthropic strategy. A revised strategy would allow him to articulate his charitable goals and align his team, operations and funding to achieve them. But he resisted investing in a strategic planning consultant to help him. He felt all his funds should be donated to charity. Fast-forward several years, and his foundation was still floundering. He couldn’t articulate his strategy. While he was giving grants to many nonprofits, his funding was not achieving the impact he desired.
To help other people, you first need to help yourself.
Now Let’s Look At Lack Of Investment In People
The second way the scarcity mindset manifests itself is in the lack of investment in people.
Philanthropy is comprised of people. Donors are people. Family offices are run by people. Foundations are nonprofit organizations staffed by people. When we need advice, we retain people. And the people we want to help are, of course, people!
Given philanthropy’s people-centeredness, the lack of its investment in people is stunning.
By investing, I mean investing in yourself. And the people who help with your giving. This could be your board of directors, employees, the boss, your kids or your spouse. It could also include your wealth advisors, estate planning attorneys and family office staff. Bring on the best talent to help start, design, grow, manage, assess and scale your philanthropy to achieve maximum impact. Provide them with the resources and support needed to be their best selves and contribute their talents. After all, you want to change the world.
Sadly, many well-intentioned philanthropists don’t invest in people.
Here’s an example. One former professional football player started a nonprofit foundation to give back to his community. He created football camps and tutoring programs to offer opportunities for low-income children to learn a sport, gain teamwork skills, have positive role models and increase their educational opportunities. Although he made significant financial contributions, he knew he needed to raise additional funds to scale and sustain these programs.
But like many of us, he lacked fundraising experience. Yet what did he do? He refused to invest in people. He refused to hire a fundraising consultant or grant writer. Why? Because it would cost money.
You can guess what happened. He was able to maintain great camps and tutoring for a small number of children, but he couldn’t realize his vision of scaling up and helping greater numbers.
These are two examples of how a scarcity mindset can thwart philanthropic impact. Once aware of the dangers of delusions, a philanthropist can quickly change. You can turn things around by embracing a mindset of abundance instead of scarcity.