What does that headline mean? I’ll explain…
“Why doesn’t the Foundation spend money the way I do out of my checking account?”
It may not surprise you to learn that I get this question A LOT. From nearly everyone I speak with! It is either asked directly or indirectly.
Today I’m attempting to answer this question as succinctly as possible. But first it’s useful to think about why the question is asked this way.
Folks seem to look at the Foundation and want to know “how much money” the Foundation has, as if that number could help them determine how much it “should” spend. I completely understand the curiosity and the question! And I always encourage questions.
But, this is the wrong question to ask.
Asking how much money the Foundation has just tells you a dollar figure. And, what most often happens, is folks compare that dollar figure to their checking account.
But a Foundation’s value isn’t measured by how many dollars it has in its account. In fact, comparing the Foundation’s dollars to your checking account is like comparing apples to oranges.
Your checking account, and the Foundation’s, both have money in them, just like apples and oranges are both fruit. But that is where the similarities stop.
A Foundation’s money is organized into different categories… some money can be used for investing in stocks, some in bonds, some in real estate, etc. Some money is for operating the Foundation (like paying the light bill), and some money is used for grants and scholarships. Even the money for grants is split out into different types of grants.
Once the money is put in a category, it can only be used for that category.
The total sum of all the Foundation’s dollars – and each category – is regulated with rules and laws and guidelines that must be followed. In fact, the Foundation is audited each year to ensure we are following all those rules and laws and guidelines.
So, while your checking account may be measured in how many dollars are in there, the Foundation is measured differently.
The Foundation is measured by its buying power not the dollar figure.
What does that mean?
To explain, let’s pretend a can of green beans costs $100 in 2024 (it feels this way sometimes!).
The Foundation wants to give a can of green beans to someone who needs food this year, 2024, and next year, 2025. And the Foundation has $100 available each year.
It’s easy to buy the can of green beans in 2024 and give it to someone who needs it! We have the right amount of money.
But, by the time 2025 gets here, inflation has happened.
Inflation is typically 2.2% every year… meaning everything gets more expensive by 2.2%. So, in 2025, that can of green beans is now $102.20 (=$100 X 2.2%).
But, the Foundation only has $100, still.
That means the Foundation can’t buy a can of green beans in 2025. It’s too expensive, and the rules and laws and guidelines the Foundation must follow say we aren’t allowed to spend more than $100.
In this example, it sounds like the Foundation has a lot of money – who wouldn’t want $100! But, because of inflation and the rules and laws and guidelines, the Foundation can’t buy it.
Ultimately, it only matters if the Foundation can buy what it needs to buy each year. That is buying power, the ability to buy what is needed every single year.
Buying power is why the Foundation invests most of its money. We must grow our money by at least the amount of inflation each year.
Why?
One of our rules is that each generation must benefit in the same way from the Foundation.
A generation is 20 years.
In 20 years, that same can of green beans will be $144.
Unless the Foundation invests wisely and limits spending, our money won’t grow. If our money doesn’t grow, you will get to eat the green beans. But your kids? Your grandkids? They are out of luck.
I understand the criticism from some folks who want the Foundation to spend a lot more money than it does. I’m hoping an understanding of this requirement to preserve our buying power helps explain why.
And, if you find this information interesting, or have more questions, give me a call or email me at jgordon@barbertoncf.org.
In Community,
Josh Gordon,
Executive Director
Barberton Community Foundation
