The Endowment Emperor has No Clothes

We are being hoodwinked. Those who operate in the nonprofit world, and those of us who give to nonprofits. We’ve all drunk the endowment Kool-aid. Nonprofits whose hearts are in the doing of good have adopted as the gold standard sitting on a big fat pile of money they never intend to spend. This hoard of cash, they’ve been told, will assure donors of the nonprofit’s fiscal responsiblility. Mr. and Mrs. Big Bucks will know by the money you keep that you aren’t some flakey, flighty, fiscally irresponsible, fly-by-night hoodwinking rip-off scam artist of a charity.

So you, who day-in and day-out see the desperate problems that cry out for money, you grit your teeth and sock away the funds, because someone supposedly fiscally smarter than you told you to do it. Then you don’t talk about the endowment. You keep it secret. Because if people knew you were hoarding money, they might not give you any more donations.

We, the givers, allow this state of events. If we are aware of your endowment, we admire it. We judge you by the size of your endowment. We give you prestige based on your endowment. We let you brag on your endowment. We are complicit in the hoarding.

“It’s not hoarding,” the advisors protest. “It’s saving for a rainy day.” That’s not true. Endowments are meant to be not spent. Endowments are sacred cows. The governing body of the charity will draw swords before they’ll spend the money. “We must cut our budget, limit our services, fire our staff, dim the lights – anything to keep from dipping into this endowment we saved so we could do good work.”

Blame this rant—the spilling over of my anger at the nonprofits who send me letters pleading for money while sitting on endowments THEY NEVER INTEND TO SPEND—on the recent UVa scandal. My alma mater has an endowment of over $5 Billion. Of course, some of the funds are restricted. So what? You’re arguing that they have only $2 Billion at their disposal? Does that justify them sending me a letter saying, your beloved university is facing hard financial decisions, send money now?

Maybe I’d be more “charitable” if the well-heeled charities were more up-front. Maybe if they didn’t pretend that, just because they’ve decided not to spend the money, it doesn’t exist. Say, if they sent me a letter admitting, yes, we’ve got $2 million in the bank. It’s been sitting there for decades, with us withdrawing a measely 5% a year. And we are actively encouraging more donations to this, our slush fund, none of which we ever intend to spend, either. But some big accouting firm or a nonprofit consultant or a money manager told us we had to do that. We believed them, and now we’ve become fellow hoarders of the millions and billions of charitable dollars that have been taken out of circulation to “smooth out” the ups and down in giving.

Naw, I wouldn’t be more charitable.

I know: all the good charities do it. They—and we—have all bought into hoarding as the very definition of “fiscal responsibility.” But in a time when the average household is two pay checks away from bankruptcy, how dare you charities turn a blind eye to your wealth and plead poverty? How dare you hoard your money and tell me you are only doing what is fiscally sound? Fiscally sound for who? Oh, that’s right – for you.