Is legacy fundraising actually higher leverage?

by Benjamin_Todd 4y16th Dec 201517 comments

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.