Note: This is an updated version of an article I wrote 4 years ago. Now it will be preserved forever in the STEEM blockchain.

File this one under barbequed sacred cow.

I think giving to charity is dumb. In 99% of cases it's actually harmful to the people you think you are helping.

So before you get out your pitchfork to try to stab me and then light me on fire, let’s examine what the purpose of charity is: helping people. And that's a noble goal and I would say helping others is a good thing for the world.

But helping them to do what?

There are cases where if a person does not receive help right this second, he or she is going to die. Great, give that person food, water, shelter, or whatever and feel good about it. That’s your 1%.

The other 99% of the time, giving people things does not actually solve their problems.

There are all kinds of problems with formal charities like corruption, how much money actually goes towards the cause it purports to help, and so on. Organizations like the Charity Navigator try to examine the various charitable groups out there so you as a donor can make an informed decision about where you are contributing your money. But even if all that were perfect, giving to charity would still be stupid.

Let’s take poverty as a classic example. We have a great deal of experience with giving poor people housing, food, and so on. Does it help them to get out of poverty? In the vast majority of instances, the answer is a resounding no. It may solve the immediate issue at hand, but it actually harms that person’s ability to care for him or herself – in other words, it harms the ability to grow wealth.

And wealth is really the key to all charitable situations. Why do people need help? It’s because they don’t have enough wealth to live in some degree of comfort. Why haven't they been able to build any wealth?

Remember that the natural state of humanity is wandering the savannah 100,000 years ago. No houses, no easy to get food, no clothes, nothing. Every single thing that we have now that makes our lives pretty easy to survive has come from the building of wealth. Even hunter-gatherer societies living in the jungles have built some degree of wealth with their body of knowledge in hunting and gathering, tools, weapons, and shelters.

Asking the Right Questions

So, the real question is not, “How can we give the homeless a place to stay?” Instead the real question is, “How can I help this homeless person develop his own wealth – and thus not be homeless any more?”

First off, we have to recognize something important. There are three primary reasons people haven't been able to build wealth: mental problems, mindset problems, and resource problems.

Mental problems can be devastating to someone's life. A large portion of the homeless in the US have some sort of mental disorder. Back in the 1970s and 1980s there was a huge movement to de-institutionalize people and empty the mental hospitals. Movies like One Flew Over the Cuckoo's Nest painted a horrifying picture of the conditions in these hospitals. So there were laws passed, and huge numbers of people were released from these hospitals. And huge numbers of those ended up being homeless. But mental problems aren't limited to the homeless. People suffering from addiction (often fueled by other mental disorders originally) or PTSD or other conditions can make it hard to behave in a rational-enough manner to accumulate wealth.

Mindset problems are very different than mental problems. Mindset problems are just beliefs that a person holds. It just so happens that those beliefs get in the way of building any appreciable wealth. People living paycheck to paycheck suffer from mindset problems. I have hundreds of clients who tell me their woes of being broke all the time. Then they tell me about the vacation they need to take to Disney World. That's a mindset that will prevent you from building wealth because it requires prioritizing a larger, long-term goal over a smaller, short-term goal. And a lot of people find that very difficult.

Resource problems come from living in an environment where the resources to build significant wealth just aren't readily available. Why weren't the homo sapiens wandering the plains 100,000 years ago rich? It's not because they were stupid. They had the same brains as us. It's that their resources like tools, knowledge, items passed down from previous generations, and so on were almost nothing. You can't build a skyscraper without knowing how to build a house first.

When you give to that charity, which of these problems are you actually solving? In a very small percentage of cases, you are solving an acute problem where the charity actually fixes the thing that is wrong and things get better. Air-lifting people out of an area that is flooding is a good example.

In most cases though, these larger scope, chronic issues are not fixed. So the charity, if they are doing any good at all, are really just treating symptoms instead of attacking the disease.

We Have the Technology

Fortunately, over the past couple thousand years, humanity has found the answer to building wealth in money and markets. The markets tell us that if we create value for someone else, that person will trade us money for that value. The trick, of course, is to create so much value so cheaply that the money we get pays for the creating and then some.

This is called profit.

So how do we help people profit?

We help them serve others. It is by providing goods and services to others that you create economic value. How much you serve others and how many others you serve determines how much wealth you can build. The stockholders of Wal-Mart provide very marginal services and only create value of about 3% above their cost. But they serve enormous numbers of people so the total value created is almost 10 billion USD. Your local farmer in your neighborhood farmers market provides goods of much higher value compared to Wal-Mart but serves vastly fewer customers.

One of the most exciting developments in this area is microfinance and cryptocurrency, especially together. These two address the resource problems directly. Microfinance are small loans made to individual entrepreneurs who are trying to raise capital in order to start or expand their businesses. In a lot of poverty stricken areas, there are plenty of people with the drive to improve their situation by serving their community but lack the capital to get started. It might cost a year's earnings to buy a goat which can then be used to make milk, butter, cheese, and meat. But then how do these people with almost no monetary wealth get the goat in the first place? That's where microfinance comes in. An investor with the money lends the new business the capital to get started. If the business progresses, then the investor is paid back with interest, the entrepreneur starts to build his or her own wealth, and the community now has more milk, butter, cheese, and meat.

The advent and increasing accessibility of cryptocurrency makes it orders of magnitude easier for people to get access to capital. Crypto sidesteps the banking system and the hurdles that it brings. It can directly connect a lender and a borrower if they so choose.

Side note: one broker in the microfinance area, Kiva, is a total scam. More on this in another post.

By lending money for business development instead of giving it no-strings-attached, we are making sure that the borrower is at least attempting to serve his fellow man and provide value to the world. Imagine a world in which every man, woman, and child was really concerned with what they could do or make that would make their neighbors’ lives better.

Stop Being Selfish

The old saw about giving a hand up, not a hand out is completely right, but most people don’t take it far enough.

But I can hear it now, what about the people who can’t do things for others? Unless that person is in a coma of some sort (a 1% case), he can do something of value to others. Don’t insult them and sell people short to assume that just because they aren’t like you that they are incapable in all ways.

So stop being selfish by giving and think it through. If you really want to help people, help them help others.

Resources

1. http://uspopulation2017.com/
2. https://www.hudexchange.info/resources/documents/2017-AHAR-Part-1.pdf
3. https://ycharts.com/companies/WMT/profit_margin
4. https://www.charitynavigator.org/
5. Source Image 1
6. Source Image 2