On Thursday I talked, together with Elie Hassenfeld of GiveWell, at the UC Berkeley Faculty Club on Effective Altruism (audio here). Scott Alexander wrote a thoughtful report, which Tyler blogged. One claim I made that I’ve before (here, here, here) is that because real interest rates (i.e., average investment rates of return) tend to be positive, it is more effective to wait, investing now and then donating later. Since many continue to question that claim, I thought I’d elaborate a bit.

In the past I’ve used Ben Franklin as an example of the possibility of using trusts to save for a very long time. But I think that distracted from my basic point, which can be made just by suggesting that you wait until the end of your life to donate. Waiting longer might in fact be better, but it has more tax and agency issues; you can’t as easily ensure your money is spent the way you want.

I admit that a good reason to donate now is if you believe that we are quickly running out of worthy recipients of charity, either because the world is getting richer and nicer, the charity world is getting more effective, or we happen to live in an unusual time of great need or danger. People who think that global warming and ecological collapse will soon make the world a hell can’t believe this, nor can those who fear great disruption in an em transition. But others may.

I also agree that tax considerations will change the rate of return you can expect, and that by giving over a period of time you may learn from your early gifts to better pick later gifts. But it should be enough to start this learning process when you are older; your life experience will help you learn faster then.

The issue I want to focus on in this post is: how high do interest rates have to be to justify saving to donate later? I’ve sometimes said that interest rates need to be higher than growth rates, and some have questioned if interest rates are in fact higher than growth rates. Others, like my co-speaker Ellie Hassenfeld and his college Holden Karnofsky at Givewell, argue that giving now to help people who are sick or under-schooled creates future benefits that grow faster than ordinary growth rates. But now I think I was mistaken – if real charity needs are just as strong in the future as today, then all we really need are positive interest rates. Let me explain.

When a person chooses to save financially, they choose to spend a bit less in their usual ways, in order to give money to someone else, in the expectation of getting money back from that someone else at a later date. If they had instead not saved, and spent the money instead, that spending may well have also indirectly benefited them in the future. They might buy some medicine, get more exercise, get more sleep, try out some new products, make some new friends, or learn some new skills, any of which might help their future self.

But at the margin, a person who saves another dollar, or chooses not to borrow another dollar, must typically expect the financial returns from their investments will help them more in the future than will such indirect effects of spending today. In fact, they should expect this savings will benefit their future self more than any of these other ways of spending today. After all, why give up money today if that both gives you less to spend today, and gives you less in the future? So there wouldn’t be any savings, or less than maximal borrowing, if people didn’t expect more gains later from saving than from spending today.

This implies that unless charity recipients are saving nothing and borrowing as much as they possibly can, they must expect that you would benefit them more in the future by saving and giving them the returns of your savings later, than if you had given them the money today, even after taking into account all of the ways in which their spending today might help them in the future. So there really must be a tradeoff between helping today and helping later; if you help more today, you help less in the future. At least if you help them in a way they could have helped themselves, if only they had the money.

Of course you might not care as much about future suffering, or future folks might suffer less. But if you do care as much, and there is as much future need to help, then if interest rates are positive you can obtain more real resources with which to give more real help if you will save now, and donate later.

You might wonder: what if a deserving charity recipient is borrowing, and at a higher interest rate than you can get from by investing? This implies that you might benefit them and yourself by loaning them money, if you could overcome the barriers that have prevented others from doing so. It also implies that if you were going to help them, you might want to do it now rather than later. But this doesn’t change the fact that there is a tradeoff between helping today vs. tomorrow. And if there will be people later in a similar situation of need, you can do more good by waiting to help them later.