I want to know how my own ability to grow the dollar value of what I can afford to donate should inform my donations.
Given the choice, a charity would prefer to receive $10 today than $10 in a year's time. But what about $10 today vs $12, $15, or $20 in a year's time? I assume this decision on the 'time-value' of money is different for different charities.
This is also true for donors. For some - given their income and expenses - a $10 donation today is as affordable as a $10 donation next year. For others, a $10 donation today is as affordable as a $13 donation next year. This depends on what they might otherwise do with their money, whether through investment or reducing their expenses (e.g., buying a property with their partner now to reduce their single-living rental expenses in the future).
For charities, this may well depend on how short-term the aid is which they provide. If we're considering humanitarian lifesaving aid, and we assume the need today is as great as the need in a year's time, then I should be concerned with the rate of inflation which applies to the cost of providing this aid. If we call this rate 2% annually, and I can grow the size of my donation by more than 2%, then ought I postpone my donation?*
This calculus must be different for different organizations. If I consider an efficient development-focused charity, they would likely be able to invest my donation into their capacity building so that $10 today might be preferable to a much larger sum in the future. For them, the time-value of money is higher than for a humanitarian-focused charity under the assumptions I give above.
When outcomes are not measured in monetary terms - but through the number of lives saved, quality-adjusted life years, or some other metric - we are both informationally and methodologically ill-equipped to suggest a discount rate for a charity. Therefore, I assume that the best authority to tell me whether $10 today or $12 next year is better for Charity A is Charity A itself. This assumes - perhaps unavoidably - that their own assessment of the utility of their impact is that same as a prospective donor would evaluate it with the same information.
Under these assumptions, I would be grateful to charities for advising on their own discount rate, or time-value, of donations. I hope the EA community can help me to revise and improve this recommendation through their criticisms.
*We can assume that the runaway implication of this which leads to everyone leaving all of their donations until their death are curtailed by the increased urgency (impact) of donations in the short term as more donors postpone their donations.
Phil Trammell has some good work on this topic, here and here.
But altruistic actors currently disagree about whether there is such a fleeting opportunity right now, and thus whether the investment rate should be more like an inflation adjusted 2%[1] or like a 20%.
One could make a case for 0.2% as well if one thought that risk of expropriation &c was very low, but geopolitical & monetary instability is high enough that I don't think that is the case. ↩︎
Interesting! Thank you very much for the references.