Opening a charitable fund for kids

Dana’s eldest daughter, Elsa, was 10 years old and seemed to have inherited her mom’s good nature. Her heart especially went out to abandoned, mistreated animals. She would feed stray cats in the neighborhood with leftovers from her dinner; TV campaigns for wild animal charities, especially elephants, tugged at her heartstrings. They would have her purse strings too, if she’d had the financial means.
Obviously Elsa was too young to donate more than a few dollars to her favorite elephant sanctuary. Still, Dana wanted to find a way to nurture her daughter’s charitable and environmentalist impulses—while teaching her some valuable lessons in economics. Generosity and compassion came naturally enough—what her mom needed to instill in her was a little financial prudence to help temper those virtues. For some kids, why isn’t the issue. The real challenge is teaching them how to give to charity.
A few years earlier, Dana had opened a charitable giving fund—a donor-advised fund (DAF), to use the legal lingo. It was free to open and administrative fees were low. Dana had put in a few thousand dollars whenever she could spare it, and itemized the charitable tax deduction as well. The great thing about DAFs is they can give you an immediate tax break, plus that money goes into an investment fund of your choice. There, it has the potential to grow while you decide which charitable cause or school to support.
When you open any account, you typically need to name a beneficiary—usually a family member. Likewise, DAFs allow you to name a successor advisor, someone to decide what to do with the money you leave behind in a DAF. If that new DAF owner wants to keep it open, they may need to refund it themselves. Dana intended to name her daughter as successor once she turned 18.
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Form the right habits early on
Although donor-advised funds are generally funded by one person, they can have multiple advisors, and the plan was to add Elsa to the account when she turned 18. For a 10-year-old, that seems eons away. Elsa wanted to make a difference today. So, we unofficially earmarked 25% of Dana’s DAF funds for her, until the day she could legally assume the role of advisor. Informally adding her daughter as a second decision maker, Dana was essentially granting her all the privileges of being an advisor, including logging into her DAF account online and reviewing the performance of her investments. Knowing she would eventually have full control over the DAF made Elsa feel emotionally invested in it. By the time she would be old enough to allocate her own money, she would be an old hand at charitable giving—which is a skill you need to hone if you want to be effective. For now, they would have fun sitting down together and researching all the good causes to potentially recommend a grant to.
Get more bang for each charitable buck
When mom and daughter typed “elephants” into the keyword search on Guidestar.org, a database of every charitable organization registered in the country, they got 231 results. Yes, there were that many nonprofits with “elephant” in their name or mission statement! In truth, not all of them helped actual elephants. And judging by their finances, many seemed defunct. So, she sorted the results by “gross receipts,” which simply put the most well-funded charities at the top of the list. Scrolling down, she viewed some organizations whose mission statements she liked the sound of, and read more about them both on Guidestar and the charity’s own website.
Guidestar can give you the lowdown on the programs your grant would be bankrolling, and how much of their annual expenditure goes to other things—like fundraising and employee salaries. It’s fascinating to see how unique each nonprofit is in the way it spends its money. You want to calculate how efficient a charity is—but that isn’t always easy.
Sneak in Economics 101 through the back door
Fundraising campaigns and well-designed websites had stirred Elsa’s emotions, but now Dana wanted to ensure her daughter’s finite grant money would make the maximum impact. Mission statements need to appeal to the heart—while the underlying balance sheets should be approached with a level head. How much was spent on actual caring for elephants compared with administrative costs? Would she be able to keep track of their progress through monthly newsletters? Or perhaps even visit an elephant sanctuary with her mom?  Some nonprofits grant VIP access to those who donate above a certain dollar amount.
After going through the lengthy but fascinating process of shortlisting elephant organizations, eventually narrowing them down to one charity, the pair came up with a gifting schedule: They would grant her elephant charity half of her money each year, leaving the other half to potentially earn interest. Elsa wasn’t too familiar with investing, but understanding that the performance of her investments would impact how much she could gift to her chosen charity, caused her to sit up and take notice of her DAF investments. The best way to get an average 10-year-old engrossed in economics is through the back door—or on the back of an elephant, in this particular case!
1 Can “effective altruism” maximize the bang for each charitable buck?” The Economist, June 2018
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November 13, 2018
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