Andrew Leigh

THE ECONOMICS OF GENEROSITY

Smart Company, November 2 2020

In its early years, Sydney technology company Atlassian had a workplace giving program. Employees could choose to support any charity they favoured, but because of a lack of promotion and a cumbersome sign-up process, only around 2 per cent of Atlassian staff were part of the program. So in 2015 Atlassian revamped the program. They minimised employees’ ability to choose which organisation they would donate to, and focused on supporting the work in Cambodia of Room to Read, a charity that works to improve girls’ literacy. The sign-up pro-gram was massively simplified, so it took just two clicks and could be done in six seconds or less. The first 100 employees who signed up to the revised program were given an Atlassian Foundation sweatshirt.

A literacy charity wasn’t the obvious partner for an enterprise software company, but the firm has built ties by encouraging a group of staff each year to fund their own travel to Cambodia to assist with the charity’s work. Because the sign-up process was quicker and simpler, enrolments increased twenty-fold. Over 40 per cent of Atlassian employees now participate in the program. Room to Read has expanded to over a dozen developing nations, and the option to join Atlassian’s workplace giving program is now embedded in the sign-up process for all new employees.

Behavioural economics has shown how powerful default settings and habits can be in our daily lives. Many Australians are stuck in underperforming superannuation funds because they feel they don’t have the time to switch. Energy companies, credit card firms and mortgage providers exploit this psychological bias by luring new customers in with special deals. When the introductory offer lapses, inertia means that existing customers end up paying a ‘loyalty tax’. If switching is costly, we often stick with the status quo.

Even small costs can deter people from taking up a promising opportunity. The ‘power of free’ was illustrated in a famous experiment which showed that when people were asked to choose between a nice chocolate priced at 26 cents and a basic chocolate costing 1 cent, equal numbers chose each. But when the prices were dropped to 25 cents and 0 cents, nine-tenths chose the basic chocolate. Participants couldn’t resist the free chocolate, even though the price gap between the two had remained the same. Every Saturday morning, parkrun puts this insight to work: promising their participants that runs will be ‘free forever’. The same principle also applies to making giving effortless. To boost donation rates, never underestimate the value of ease and simplicity.

Atlassian’s six-second sign-up worked because it overcame the frictions that were stopping employees from signing up for workplace giving. Similar insights are being used by other organisations.

In the area of finance, Hearts and Minds Investments is an investment fund with a twist: the people choosing the stocks do not charge a fee. Instead, the fund takes a share of its assets every year and gives them away to charities and non-profit groups that are doing medical research. The result is that people can ‘set and forget’ their investments, knowing that part of their share market returns will be directed towards the charitable sector. At present, Hearts and Minds Investments gives away 1.5 per cent of its assets annually to ten charities, including MS Research Australia, the Black Dog Institute, the Sydney Children’s Hospital and the Florey Institute.

In other areas, complexity acts as a deterrent to philanthropy. When people sign up for a superannuation account, they are asked to nominate a beneficiary for any assets left after they die. It is simple to leave the money to a spouse or child. But there’s no easy way to leave the money to charity. To do so, you need to first sign a superannuation form that directs your unspent retirement savings to your estate, and then write a will that says the money is to go to a charity. Unsurprisingly, few Australians take this approach: charitable bequests out of superannuation are rare.

When it comes to matching up donors and recipients, nothing beats online platforms. The simpler it is for people to donate items, the easier it becomes for charities to source the items that their clients need, and the more in-kind donations will flow to where they are most needed. Technological platforms are also making it simpler for charities to engage with potential donors. GiveEasy offers pre-filled donation forms, SMS donation (‘text FREEZE to 0400 064 064 to freeze motor neurone disease’) and real-time updates on donation totals for live events. Similarly, Good2Give offers a fundraising armoury equipped with social media artwork, how-to guides for charity campaigns, and ‘tap to give’ terminals (which allow people at an event to simply tap their credit card to give $5). Using Raisely, GoFundraise or everydayhero, organisations can quickly set up donation pages for special events. A variety of retailers and apps even allow customers to ‘round up for charity’, donating the spare change from their transaction to their favourite charity.

This is an edited extract of Reconnected: A Community Builder’s Handbook, by Andrew Leigh and Nick Terrell.

ENDS

Authorised by Paul Erickson, ALP, Canberra.