WHY ARE SELF-MADE BILLIONAIRES MORE GENEROUS THAN BILLIONAIRES WHO INHERIT THEIR WEALTH?
The recent sobering report from Oxfam showed that 62 people own as much as the poorest half of the world's population. However, the good news is that some of these 62 people are also the most generous.
For example, Bill Gates has pledged to donate 95% of his wealth to charity and has already donated $28 billion of his fortune. Similarly, Warren Buffet has promised to donate 99% of his wealth and so far has donated $11 billion. Even Mark Zuckerberg recently pledged to donate over half of his fortune to charity.
Recent research has shown that self-made billionaires are three to four times more generous than billionaires that have inherited their wealth, as measured by their propensity to sign the Giving Pledge or enter the Philanthropy Top 50 list of biggest donations (Coupe & Monteiro, 2013). Bill Gates originally made this observation a few years ago, stating that “our experience worldwide is that first-generation wealth is actually more generous than dynastic wealth… Both here in India and U.S. and other countries, the biggest givers are those who are receivers of first-generation wealth.”
So why is this the case? From a psychological perspective, here are a few reasons that this effect might exist:
Parents have a desire for their children to grow up to be like them and so by donating the majority of their wealth, their children will have to make their own success too.
Peer networks are stronger amongst self-made billionaires, for example Warren Buffett and Bill Gates are close friends, and therefore they are more likely to measure their behaviour in relation to their peers and jump on the charitable bandwagon.
Due to the fact that self-made billionaires have made their money, they have a stronger connection with their wealth than they would if it had been gifted to them. This increases the endowment effect which leads to a stronger sense of empowerment to make bold decisions about how to spend it.
Coupe, T. & Monteiro, C. (2013). The Charity of the Extremely Wealthy. Discussion Papers 51, Kyiv School of Economics.