An Emergency Fund for Effective Altruists

One of the things stop­ping peo­ple from donat­ing a sub­stan­tial part of their in­come to char­ity is the risk of a fu­ture fi­nan­cial down­fall, which can be any­thing from un­em­ploy­ment to ill­ness. Even in a rich coun­try with a solid so­cial safety net, the idea of hav­ing no fi­nan­cial buffer at all seems daunt­ing. How­ever, if effec­tive al­tru­ists pre­com­mit­ted to helping other effec­tive al­tru­ists in need, they could all donate more money, since the risk would be spread and only some would go on to be­come sick or un­em­ployed.

This sounds a lot like in­surance, and effec­tive al­tru­ists could in­deed in­sure them­selves against a myr­iad of risks. Un­for­tu­nately, this in­tro­duces the over­head of an in­surance com­pany. (When ask­ing for a bal­l­park es­ti­mate at the in­surer I in­terned at, I was told that at most one-third of all pre­mium money is put back into pay­ment of le­gi­t­i­mate claims.) Be­sides, cov­er­age will never be 100%, an in­surer will re­ject claims when­ever pos­si­ble, and in­surance re­quires monthly pay­ment, which re­quires sta­ble in­come.

The al­ter­na­tive to in­surance I pro­pose is an in­ter­me­di­ary char­ity that acts as an emer­gency fund. If a donor spends $100 through this char­ity, this in­ter­me­di­ary char­ity di­rectly for­wards $80 of in­com­ing dona­tions to char­i­ties of the donor’s choice. The re­main­ing $20 is put in an emer­gency fund. In situ­a­tions where the donor would oth­er­wise make use of their fi­nan­cial buffer, they can re­coup up to $95 from the emer­gency fund.

Re­coup­ments would not need to be sub­jected to the same thor­ough vet­ting as in­surance claims, since donors can­not re­coup more money than they origi­nally spent, so there is lit­tle op­por­tu­nity for fraud.

The num­bers above work un­der the as­sump­tion that, on av­er­age, donors need 20% of their dona­tions back. It might make sense to cre­ate differ­ent funds for donors with differ­ent risk pro­files: if a sub­set of donors think there’s a 50% chance they’d need donated money back, they could donate to a fund which puts half of their dona­tion in the emer­gency fund.

Be­cause the idea of an emer­gency fund for donors is so sim­ple, I’d say there’s a good chance this has already been done or it’s not fea­si­ble. This is quite far out of my bal­l­park, so don’t hes­i­tate to school me on this stuff. Some de­tails that definitely have to be worked out:

  • Should donors be re­quired to provide rea­son­ing for re­coup­ing their dona­tion? My gut says no, un­less some­thing akin to a bank run oc­curs. They should prob­a­bly have to tick a box that says “An emer­gency oc­curred! Be­cause of this, I re­ally need the money.”

  • Should the right to re­coup be in­her­i­ta­ble? This would make donat­ing more at­trac­tive for those wor­ried about their offspring, but it makes the op­er­a­tion more com­plex.

  • If re­coup­ments oc­cur spar­ingly, as I’d ex­pect, where should the re­main­ing funds go? Donate them pro­por­tion­ally to all dona­tions?

  • How big is the risk that the fund will be used in illicit ways, such as tem­porar­ily mov­ing money off the books, de­spite the fact that donors can­not claim more than they spent?

  • Should the emer­gency funds be in­vested?

  • What ought to hap­pen if the fund is drained?