HOW TO GET SOMETHING FOR NOTHING: THE MYTH OF COST-FREE GIVING

22 August 2011

How do you get something for nothing? That’s a question that seems to interest those in government tasked with coming up with policies to promote giving.  In the Green Paper on Giving, there was a lot of apparent excitement at the idea of “cost-free” giving- new forms of donation, mostly based around online services, that allow people to “give” at no cost to themselves, simply by using a particular product or site. Although curiously any mention of cost-free giving had disappeared, along with a number of other ideas, by the time the subsequent White Paper was released, so perhaps official interest has waned. In any case, cost-free giving exists and is growing, so it is worth looking at how it works and what the implications are.

The first thing to say is that cost-free giving is obviously not truly free: despite the wishful thinking of many, if money is going to go to charity, someone has to give it. It is free in the sense that the “donor” themselves does not have to spend their own money in order to make a donation. In general terms this works in one of two ways:

1 By taking a service where there is an embedded user charge (eg a banking transaction) and allowing the user to stipulate that a percentage of this charge goes to charity instead

2 By taking a service which is free to users but relies on fees from third parties such as advertisers (eg internet search) and allowing users to choose for a percentage of those fees to go to charity instead.

In both these cases, what is happening is that the service provider is foregoing a percentage of profits in order to pass that money on to charity. Hence it is basically a form of corporate giving, albeit one where service users are able to dictate (to a greater or lesser degree) who the beneficiaries are.

So what’s the problem? Isn’t this just unquestionably awesome? Well, yes and no. From the point of view of those (like me) who want to see more money going to charities, the idea that you can divert money that would otherwise be going into the profits of commercial enterprises towards good causes is obviously appealing. And for those who don’t have an enormous amount of money to give themselves (also like me), knowing that simply by choosing one provider over another for a service you were going to use anyway,  you can help charities is a great incentive.

The only real downside is that we don’t yet understand how cost-free giving fits in with more traditional forms of donation: if it is truly additional (i.e. there is just more money being given), then that is great. However, the concern is that some or part of the money given by cost-free means is simply replacing money that would otherwise have been given, so the overall amount is not growing that much. The worry here is that donors think that by using cost-free giving mechanisms, they have “done their charitable bit”, and so they no longer feel the need to give as much in traditional ways. The long-term effect of this on giving behaviour could be hugely detrimental, and there is already some evidence to show that the concern is justified.

Even if it turns out that cost-free giving doesn’t have an impact on the amounts that people give, the focus on this and other forms of low-friction giving (such as ATM giving) amongst policy makers may be a cause for concern. While there is an obvious logic to making giving as easy as possible, and this fits in with the “nudge” approach of designing “choice architecture” to influence behaviour, if you make something so easy that it requires virtually no effort and barely registers as a decision, there are surely potential downsides?

At the same time as many of us are trying to push the need for a more philanthropic culture, where people give over the long term and think about what they want to achieve with their giving, it is strange that there is another thread of thinking focused on how you can make it possible for people to give without even thinking about it. The two seem quite contradictory, although perhaps the idea is to use low-friction giving as a way of instilling giving behaviour, with a view to developing this into a more conscious philanthropic engagement later on? I don’t know.

This is not to hose cold water on anyone’s fire: new ideas for using technology to encourage giving are important and welcome, and cost-free giving certainly has a lot of merit. It is just important to think through the ramifications and to be clear about the limitations of new approaches, rather than blindly worshipping at the altar of the new.