Measuring cost and benefit

Quick question. What benefit do you (as in you personally) get from donating to charity?

If you answered "none", then you may be interested in reading articles like this one from Terry Savage who may have a similar mentality to yourself.

In brief, while in an "upscale neighborhood", the author drove past 3 children who had setup a lemonade stand. Upon finding out that the children were giving away the lemonade for free, she then proceeded to lecture the children about how they should charge for the lemonade in order to cover the cost of the lemonade. She then goes from this to extrapolate that the problem with the US is that people expect a "free lunch" which is demonstrated by the kids giving away lemonade.

Yes, really. No, I'm not making this up - you can read the article for yourself if you don't believe me.

My issue with the article (but with a major caveat which I'll go into later) is how badly she savages basic economic theory. In this case, the cost vs benefit comparison. The basic mistake being made is that she did an income vs expense comparison instead of doing a cost vs benefit comparison. Cost vs benefit isn't just about money and also takes into account other factors.

What other factors are there? Good question - lets do a lazy brain dump and see what I can come up with off the top of my head.

Cost
The author says that the children don't have a spirit of giving as they aren't giving away their own things - they are giving away their parents things. The problem is that this only applies if the parents don't know what the kids are doing. As an example, if I give some food to Gerry and he decides to share it with other people, I don't consider this as him giving away my stuff.

Also, assuming the parents gave the kids the ingredients and cups, then the monetary cost to the kids is zero. The cost vs benefit analysis of this to the parents is beyond the scope of this article...
:)

Benefit
Clearly the benefit to the children isn't just the amount of money for which they are selling the lemonade for. The biggest benefit which the children may be getting is the feel good factor from giving away lemonade. Maybe the kids view it as a form of charity. Maybe they view it as them giving back to the community (now, there's a novel thought - wanting to give something back to the community in which you live!). Heck - maybe they just view it as a way of practicing their lemonade making skills!

The reality is that there are lots of reasons for people to do things for free. It has long been established that money is not always a particularly great motivator (anyone with a business degree should be able to tell you that money is not a motivator in itself but a hygiene factor). If nothing else, the growth of wiki's and open source software should tell you that. And, just to tie this into the original question at the beginning of this post, the whole act of giving to charity (either with a cash donation or with volunteer work) is done with no expectation of monetary reward.

Bear in mind that this incident occurred in an "upscale neighborhood". For children living in an upscale neighborhood, lack of money may not be a particularly huge issue for them so you have to consider that they are getting some other benefit out of this.

Caveat
I think by now, I've established why I think the author made a mistake in saying that the kids should charge money for the lemonade. So what is this caveat that I mentioned earlier then?

The thing is - the author is a finance columnist and a published author of best-seller finance books. With that in mind, I find it hard to believe that she would make what seems to be such a basic mistake. I find it more likely that she wanted to make a comment on people expecting free government handouts and used this story as a lead in without really thinking about what she was saying.

Either that or she put the story in just to get people talking about her and her column. Dayamn! I think I just been played!


PS I just love her tagline at the end - And that's the Savage Truth!