How did the idea for the Future Fund originate?
One of the founders of the Future Fund, Rik Viergever, explains here how the idea for the Future Fund happened:
The idea for the Future Fund occurred to me when I started studying investments and the stock market in 2018. I learned that investing in stock can be safe and give reliable returns, as long as you diversify and have a long investment horizon. I then started looking into the interest on savings accounts and stocks. From this I learned that the average interest on ‘saving’ is 2.3% per year (this is the average interest on government bonds in the past century). This is in ‘real’ value, corrected for inflation. I think this is already pretty good for an average — over long periods interest adds up. On stocks the interest is even better: 6.9% per year on average.
It surprised me how high both these annual averages were. This made me wonder if charities were making use of savings accounts and/or the stock market to generate funding for themselves. I started doing some math: what if someone, 100 years ago, instead of donating 10 dollar to a charity, had put those 10 dollars in a savings or investment account and had used the interest to support the charity — how much would the charity have received after 100 years?
The results of this math is shown in the graph below, for a hypothetical donation of 10 dollars in May 1920. A one-time donation of 10 dollars remains 10 dollars. However, if the person had put the 10 dollars in a savings or investment account, and given the interest to the charity, the image looks quite different. For the savings option, the charity would have received 18 dollars of support from 1920 to 2020. If the donor had put the amount in an investment account, it would have resulted in almost 80 dollars of support. This is in ‘real’ value, already corrected for inflation.
Source: Data build upon Robert R. Shiller, Stock Market Data Used in “Irrational Exuberance” Princeton University Press, 2000, 2005, 2015, updated data, available from the Department of Economics at Yale university. The Future Fund’s adaptations can be downloaded here.
I started thinking of this new way of donating to charity as ‘evidence-based giving’ and the more I thought about it, the more I liked it. So I started to look online for how to donate to charities this way, but I was unable to find a tool that allowed me to give this way. That is when I started asking friends and family if they thought donating to charity like this was attractive — and they did. And so now we are establishing the Future Fund, and making it possible for everyone to do a donation-investment for their favourite charity!