In Part 1 of “Free Is a Bad Idea,” I wrote about how “free” is generally bad in business – in particular, how free offers tend to work poorly as marketing campaigns and can actually weaken the long-term profitability of a business. Today, I’d like to talk about another area where “free” is generally a bad idea: how well-intentioned charitable projects can be damaged and even doomed by giving away things for free.

Free Is a Bad Idea, Part 2: Free Offers in Charity 

 “Too many have dispensed with generosity in order to practice charity.” – Albert Camus

I know more about making money than I do about giving it away. But I’ve been inclined toward charitable giving all my life, and have been actively involved in running a charitable foundation for the last 20 years. So while I don’t pretend to be an authority on the subject, I’ve come to several conclusions about what works and what doesn’t.

Among them is this: In charity, as in business, “free” is generally a bad idea.

I am writing a book about the 20 years I’ve spent running and funding a charitable foundation, in which I recount dozens of stories about charitable impulses gone awry. (You may remember reading one of them, here on the blog, about my attempt to help Marcus and Gabriela.)

These stories all have the same plot: I decide to “help” someone by giving them something – usually money – only to find, in the end, that the transaction was good only for me. It made me feel magnanimous. But it hurt the person I intended to help in some substantial way. Not only were the objectives of the giving not met, but the giving usually gave rise to unexpected and disappointing consequences.

For example: I once gifted money to someone I cared about to start a business – no strings attached. Over a period of about two years, I increased the funding until I had put in nearly a quarter-million dollars. When it became apparent that the business model was not working, I discontinued funding it, which meant the business had to be closed. The response from the beneficiary of my generosity was a mix of anger and resentment.

We eventually got past that because we each valued our relationship more than our mutual disappointments. But I was vexed with the memory of it until I woke up one day and realized that I had to accept responsibility for the failure. My mistake, I decided, was that I gave the money with “no strings attached.”

Some time later, in 1998, I set up the foundation I mentioned above to manage my charitable activities. Its primary program was FunLimon – a community center in Nicaragua. It was initially intended to provide the local people with literacy and English classes, but soon grew into a large athletic and educational facility.

This was a significant commitment to charitable giving, and it gave me an opportunity to learn that there was still a great deal that I didn’t know about how to help people in a meaningful way.

Soon after we opened FunLimon, for example, I “sponsored” a local baseball team in the town. We bought them uniforms, shoes, and gloves, and paid the fee the team had been paying to participate in the league. The next year, they surprised me by asking for an entirely new set of uniforms, shoes, and gloves. When I suggested that they could use the old ones, they went on strike. (I’m not kidding.)

Another example: At the beginning of the school year, we gave all the school children in the local area a backpack filled with school supplies and a new pair of shoes. Many of them, too, asked for new backpacks and supplies the following year. When we asked why they couldn’t use the old ones, they told us that they wanted new ones.

Yet another example: For several years, we supplied the local schools with meat products to enrich the lunches they provided (which were basically rice and beans). Since we could not imagine any negative consequences to this particular program, we meant to continue it indefinitely. But then we discovered that several of the schools weren’t using the money we gave them to buy meat. They used it instead, they told us, to give the kids graduation parties.

I have better stories than that, but I’m saving them for the book.

Ultimately, I came to understand that giving away money is as challenging as getting it. To avoid the inherent negative consequences, I have to treat my charitable activities with the same seriousness as my business endeavors. That means, besides putting in the time required, taking responsibility for the negative consequences of anything our foundation does, even when those results are contrary to our good intentions.

Doing less damage than good… 

Our motto – “Do Less Harm Than Good” – reflects that principle. And from that, we have developed a mission statement, policy documents, and guidelines that help us evaluate and execute our programs.

One of those guidelines, one of the most important, is to be wary of giving away anything for free.

Our recreational facilities, for example, used to be free to anyone that wanted to use them. Now we charge a small membership fee – a dollar or two a month. Likewise, our educational programs – from English to Spanish literacy to martial arts and our trade school programs – used to be free. But now, they, too, have a small tuition fee.

At first, there was a bit of grumbling about these new fees. A few people even accused us of trying to profit from our non-profit! (Had they bothered to check the public records, they would have seen that the revenue we get from any and all fees and tuitions represents in total less than 20% of our expenses. Another 5% of our revenues come from private donations. And the rest of the annual budget – more than $200,000 a year – is funded by yours truly and family.)

When these objections were first voiced, I was surprised and disappointed. How could anyone complain about paying a dollar or two a month to have a membership in a first-class recreation center? And why would someone that was paying $50 a month for English lessons, given an hour away in the city of Rivas, feel that paying the foundation $5 for native instruction was a rip-off?

The answer is human nature.

I’ve been thinking about this for a long time, and I’ve come to the conclusion that there is nothing in the human mind that is more universal than the capacity for entitlement. (But that is a subject for another essay.)

Because of the initial objections, early enrollments in our programs went down marginally after we started imposing fees and tuitions. But within six months, those same programs were back to being fully booked and overbooked.

Perhaps more importantly, class attendance improved. In some cases, dramatically! The demand for English classes, for example, almost doubled (now that they had a chance to realize what a great value they were at $5 a month, compared to $50).

In addition, we noticed that the frequency of tardiness and truancy that we had taken as a norm during the “free” years diminished by about 20%. And the number of students that graduated from the trade school programs increased by more than 30%, from 60% to 90%.

And though we have no numbers to prove this, our instructors and staff personnel believe that all those that take advantage of our programs enjoy themselves more, appreciate what they are being given more, and complain much less. (Complaints are virtually zero.)

We still provide school books and other school materials to local students. But nowadays, they are required to pay for them – usually at a discount of 75% to 90% of what they would cost in a store. And if anyone can’t afford the small amount we charge, we offer no-cash alternatives that cost them their time and labor. In the case of school supplies, for example, they can pay for their yearly requirements (about $50) by spending several hours cleaning or painting the school.

So that is the short story of what I have learned about giving away charity for “free.” It is generally a bad idea. There are exceptions to this rule. I sometimes, for example, will pay for emergency medical expenses, and we have funded an area program for improving wells that was provided freely. But even those, I’m thinking, might be better used and more appreciated if we found a way to “charge” for them.

I expect that you don’t run your own charitable foundation. That your method of supporting charity is to give your money to a public charity whose mission you support. You may do your due diligence by consulting with one of the services that rates public charities based on factors such as what percentage of funds received go directly to the beneficiaries. I would recommend taking one more step and finding out if those charities give away their help for free. Most do. And that has almost certainly created negative consequences that won’t be in those reports.

Think about it.

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