# An Emergency Fund for Effective Altruists (second version)

*This is a rewrite of [an old post of mine](https://www.lesswrong.com/posts/JDdmcc4CmMDDo82rZ/an-emergency-fund-for-effective-altruists), incorporating ideas from [Alicorn's earlier post on the same topic](https://www.lesswrong.com/posts/A4DkMYgiDCmRMtKxr/fractional-reserve-charity).*

One of the things stopping people from donating a substantial part of their income to charity is the risk of a future financial downfall, which can be anything from unemployment to illness. Even in a rich country with a solid social safety net, the idea of having no financial buffer at all seems daunting. However, if effective altruists precommitted to helping other effective altruists in need, they could all donate more money, as the risk would be spread.

This sounds a lot like insurance, and effective altruists could indeed insure themselves against a myriad of risks. Unfortunately, insurers will reject claims whenever possible, many risks cannot be easily insured, and insurance requires monthly payment, which requires a stable income. In other words, insurance is no replacement for a personal financial buffer. Insurance is useful to mitigate specific high-cost risks, but that's it.

(Additionally, insurance introduces the overhead of an insurance company. When I asked for a ballpark estimate at the insurer I interned at, I was told that at most one-third of all premium money is put back into payment of legitimate claims.)

I propose an intermediary charity that acts as a shared emergency fund. If a donor spends $100 through this charity, this intermediary charity directly forwards $80 of incoming donations to charities of the donor's choice. The remaining $20 is put in an emergency fund. In situations where the donor would otherwise make use of their financial buffer, they can take up to $95 from the emergency fund.

Crucially, donors cannot recoup as much as they originally spent, so there is little opportunity for fraud. As such, recoupments would not need to be subjected to the same thorough vetting as insurance claims.

The example above works under the assumption that, on average, donors need 20% of their donations back. It might make sense to create different funds for donors with different risk profiles: if a subset of donors think there's a 50% chance they'd need donated money back, they could donate to a fund which puts half of their donation in the emergency fund.

Even so, I would not recommend relying entirely on the emergency fund as a replacement for a personal financial buffer, because it can be drained in times of national and global crisis. However, I believe that the mere existence of such a fund would move people to donate more, not just by donating part of their personal buffer, but also because it makes donations less final. When contemplating giving away large sums of money, some people will always worry they might need the money in the future, even if they are in good shape financially. If they knew they would very likely be able to get the money back, donating large sums of money would be much easier on the psyche.

An issue raised by [this comment](https://www.lesswrong.com/posts/JDdmcc4CmMDDo82rZ/an-emergency-fund-for-effective-altruists?commentId=3byC866LSQiupxsrJ) is that it might be impossible for the emergency fund to be registered as a charity. The donors gain a large entitlement by donating. Tax agencies probably aren't fond of tax-free donations which give delayed monetary benefits to donors. As such, donations may not be tax-deductible.

This structure being entirely theoretical, there are a lot of open questions:

- Should donors be required to provide reasoning for recouping their donation? My gut says no, unless something akin to a bank run occurs. They should probably only have to tick a box that says "An emergency occurred! Because of this, I really need the money back."
- Should the right to recoup be limited to X years? Or should there be a lifetime guarantee? Should the right to recoup be inheritable? This would make donating more attractive for those worried about their offspring, but it makes the operation more complex.
- If recoupments occur sparingly, as I'd expect, where should the remaining funds go?
- How big is the risk that the fund will be used in illicit ways, such as tax evasion, despite the fact that donors cannot claim more than they spent?
- What should happen if the fund is close to being drained?
- Can the emergency fund be registered as a charity? What changes would make its charity status unambiguous? For example, should the fund also provide recoupments to effective altruists who did not donate through the fund but donated directly to e.g. GiveWell, but scrutinize those recoupments more?