I made a mistake, and I should have known better.

Last year, I struggled with coming up with a needy non-profit organization that I felt I should support through charitable giving. The indecision stems from the desire to contribute to an organization with a mission that reflected one of my passions and the lack of quality non-profits that fill that niche. By the end of the year, I decided to provide money to the Fidelity Charitable Gift Fund, which would allow me to distribute or grant my funds to the recipients I choose at a later date.

I invested these funds like I normally do. With the $5,000 I provided to fund my “mini-foundation” in December 2007, I invested in a broad market index fund. Considering I intended to use these funds, or at least a portion of these funds, throughout 2008, I shouldn’t have chosen to invest in the stock market. I should have left the money in a money market account within the Charitable Gift Fund. The account would have grown to about $5,200 by the end of December 2008 if left alone.

At this time, the account’s value is a little over $4,000, having lost about 20% so far this year. That’s $1,000 less that I have to donate to a worthy organization because I couldn’t find the right match—possibly a procrastination—and because I invested without considering my time horizon for these particular funds.

Now I feel as if I need to leave the money in there until the market recovers its losses from the last year, but it could be a long time before the index fund increases 25% from today. My goal before the end of the year is to finally select an organization worthy of my continued support and pay them directly from my available cash rather than from the Charitable Gift Fund. I’ll also continue to contribute to the Fund but I’ll set some funds aside for short-term charitable giving in addition to continuing to invest in the stock market index fund for longer-term growth.

Perhaps you have seen this. It may take the form of a manila folder containing a list of names on the front and a card and an envelope in side. Some of the names have been crossed off and perhaps even there’s a dollar amount written beside those. The card has is a generic “get well soon” message on the front and is signed by your co-workers, many with just-as-generic wishes like, “Get well soon! Hope to see you back.” The envelope has money contributed by your co-workers, and you’re next on the list.

In the past few months in my office, we’ve had numerous employees on medical leave, baby showers, and other random parties, all which seem to require a donation of some type. This has always been fairly common, but the volume has increase lately. I always participate, but I’m starting to grow weary. If someone chooses to have elective cosmetic surgery, do they still need recovery gifts?

Do you participate in these giving rituals? If you do, are you motivated by guilt at all?

In researching historical and religious views on charitable giving, I came across Maimonides’ hierarchy. He believed that there are 8 degrees of charity. These deal primarily with providing for the poor. Here are his 8 levels, from the highest to lowest. Do you agree with this assessment? How high are you on the list?

1. Investing in a poor person in a manner that they can become self-sufficient.
2. Giving to the poor without knowledge of the recipient and without allowing the recipient to know your identity.
3. Giving to the poor with knowledge of the recipient but without allowing the recipient to know your identity (anonymous giving).
4. Giving to the poor without knowledge of the recipient but allowing the recipient to know your identity.
5. Giving to the poor without or before being asked.
6. Giving to the poor after being asked.
7. Giving to the poor happily but inadequately.
8. Giving to the poor unwillingly.

What do you think?

I’ve had charity on my mind lately, and it seems to be affecting what I write about. During my normal reading, I came across a Washington Post article about what is apparently an increase in philanthropy among teenagers and younger children.

Young children and teenagers across the nation are getting involved in philanthropy more than ever, according to research and nonprofit experts, who credit new technologies with the rise of the trend. As young people increasingly become exposed to and connected with the problems of the world via the Internet and television, experts said, parents are finding new ways to instill in their children the value of giving. At the same time, technology is democratizing philanthropy so giving is not only easier for people of all ages and means, but also trendier. And children are starting to organize at the grass-roots level to give…

The scale of money children are raising through new technologies or giving away through charities is “mind-boggling,” said Lucy Bernholz, founder and president of Blueprint Research and Design, a leading consulting firm for nonprofit organizations. “It used to be the pennies we raised through UNICEF boxes, and now you’re talking about 15- and 17-year-old children who are savvy enough and committed enough to raise tens of thousands of dollars and sending it halfway around the world,” Bernholz said.

The article contains many examples of teenagers and children who are outpacing my own giving. According to the research, much of this increase in giving is driven by affluent families who include children in their charity decisions. Philanthropy isn’t just for the affluent, as I’ve discovered lately. In just the Fidelity Charitable Gift Fund, the pool of donors recommended over $1 billion in grants to charities last year. As I’ve written about recently, this type of fund gives smaller-time investors and “thousandaires” like me access to some of the benefits that millionaires have when they create and administer foundations.

I don’t remember knowing much about philanthropy when I was a pre-teenager. I was certainly aware of global issues; Live Aid was a major force back then. I didn’t see myself in a position to support the causes other than buying memorabilia for which proceeds went to support various charities. Thanks to technology, more opportunities for giving are available to more people.

image credit: zugaldia
For Modern Kids, ‘Philanthropy’ Is No Grown-Up Word [Washington Post]
Gift Fund Donors Set Record for Giving in 2007 [Fidelity]

Last week, I mentioned I met my goal for charitable giving for 2007. The modest goal, which I set for myself at the end of last year, was to provide $1,000 in support of an organization meaningful to me. This year, I decided to separate myself further from the organization I normally support, which also happens to be a former employer. It’s not that I don’t believe in what they do, but I have some issues with their methods.

I want to make sure my money helps an organization reach its stated goal, and I will only give to an organization whose goals, mission statement, and vision match my own values. In addition, it helps to have a strong knowledge of the inner workings of the organization. Unfortunately, it’s this strong knowledge that has turned away from the group I formerly supported.

This past year, I’ve had difficulty coming up with a replacement besides the pfblogs.org Financial Literacy Challenge. This has been a frustration for me, particularly because I wouldn’t mind managing an arts education foundation of some sort. While researching methods for starting a foundation—an endeavor better attempted by someone with millions of dollars ready to be dedicated and willingness to spend a lot of money just to run the foundation—I came across the idea of the charitable gift fund.

The charitable gift fund allows me to make a contribution to a general fund now without specifying a direct recipient. That also allows me to take a tax deduction for the contribution this year while taking my time to decide where the money should go. In the mean time, the funds are invested and presumably appreciated along with the rest of the stock market.

Charitable gift funds, or more specifically donor-advised funds, are organized by several brokerages and public charities. I chose the Fidelity Charitable Gift Fund thanks to its low barrier of entry (only $5,000 to open an account and subsequent investments must be at least $1,000) and its relatively low fees (0.6% including the underlying expense ratios, with a minimum of $100).

In return for the ability to take the tax deduction now, I give up my ability to manage and distribute the funds directly. However, I can recommend grants to charities as long as they are registered under regulation 401©3, and therefore legal non-profit entities. It would be very rare for Fidelity or any other custodian to reject a donee suggested by the donor as long as the organizations are not-for-profit and the donor doesn’t directly benefit from the organization’s receipt of the funds.

When I sent in my $5,000 to establish my donor-advised fund, I selected to invest the money in Fidelity’s Spartan 500 Index Fund (FSMKX), which carries an expense ratio of 0.1%. I could have transferred securities or other assets to the fund, but I opted to send cash. Unfortunately, they don’t support ACH transfers, so I had to write a check. A wire would have cost extra money.

Now that the fund is established, I can suggest grants at any time in amounts of $100 or more. The $5,000 I sent to the Fidelity Charitable Gift Fund is irrevocable, so it can only be used for charity. I’ve surpassed my “stretch goal” of $2,000 for 2007. In the process of establishing the fund, I sort of circumvented the most important part, getting that money into the hands of organizations for their use towards their missions. However, I’ve ensured that once I select recipients I will be contributing more than I would have otherwise.

If you’re interested in starting your own philanthropic endeavors through a charitable gift fund, here are some resources to get you started.

• Fidelity Charitable Gift Fund (minimum of $5,000 to establish an account)
• Vangard Charitable Endowment Program: Donor-Advised Funds (minimum of $25,000 to establish an account)
• National Philanthropic Trust: Independent Charitable Gift Fund (minimum of $25,000 to establish an account)
• Charitable Gift Trusts at The Motley Fool

• You Can Be Your Own Charitable Foundation at MSN Money

  photo credit: johntrainor