Barclays Wealth/NPC research

An economic approach to allocating charitable funding

By Iona Joy 19 September 2011 2 minute read

All charitable funders want to improve the lives of disadvantaged people. But what if you also wanted your funding to create savings for society and the economy at the same time? Is there a way of applying economic analysis to some of society’s greatest problems?

Charitable funding is often allocated according to personal beliefs and emotional connections. Society’s biggest problems do not attract the most money. Nor is funding spent on the most effective solutions. But if resources are scarce, should we think more about their allocation?

Earlier this year, Barclays Wealth asked NPC to investigate whether taking an economic approach to charitable giving could help to maximise its impact. The report is published today.  This is what we learnt:

1. Economic analysis can make the case for supporting unpopular causes

Taking an economic approach can highlight unpopular and neglected issues, which are also very costly. The analysis not only makes the case for tackling them—because if you don’t, they will cost society billions—but also identified the economic benefits of the solutions.

For instance, crime committed by adults who had some sort of conduct problem in childhood costs £51bn a year. So what happens if you tackle conduct disorders in childhood, before they become entrenched? A schools-based counselling programme has evidence that over 70% of the children using their services show improvement in behaviour and well-being: this programme, working with over 2,300 children, estimates it achieves £6m of cost savings by preventing problems in adolescence and adulthood.  The Family Nurse Partnership programme, working even earlier in life to support vulnerable young mothers with pregnancy and infanthood, has robust evidence from the US that it saved five dollars for every dollar spent. We’ll see if it achieves the same here in the UK, but a lower ratio would still be impressive.

2. Private funders have a unique opportunity to experiment with different approaches

Private funders have a special role—taking risks, supporting early intervention, prevention, investing in evidence collection. Governments prefer proven programmes delivered by ready-made professional organisations, and demand returns quick enough to impress the electorate. Private funders can experiment, take a longer view, fund evaluations, and nurture the organisations developing and delivering solutions towards greater effectiveness.

3. This kind of analysis is difficult (and imperfect) but worth it

This whole process was experimental, so finding that that it is possible to take a rational approach to asset allocation was valuable in itself. An economic approach is just one you could take. Other lenses, such as well-being, could also be applied to assess the benefits of tackling social challenges. But don’t expect perfect, comparable data – it doesn’t exist – do take the time to think about cause and effect, and risk/return. Expect the process to be sometimes subjective, and certainly iterative. But the journey is worth it—you learn so much, and come to understand the case for solutions to really tough problems.

Read about this research in this weekend’s financial times (login required)