Last time, we looked at credit card gifts…and some of the problems with these gifts.
There’s one more problem, a common problem, with credit card gifts, which arises when the donor wants to establish a gift annuity with a credit card.
Let’s take the case of Doris, aged 79, who wants to set up a $10,000 gift annuity with a credit card. Doris calls Charity’s PGO, makes an agreement over the phone (later to be reduced to writing), and promptly charges her card $10,000 in favor of Charity.
The problem is, Charity isn’t going to receive $10,000 for the annuity. (I know, a lot of charities eat the fee, which I don’t like.) Charity’s going to receive $10,000 less a 2.5% fee. (I know, not all CC companies charge the same fee…we’ll use 2.5% just for discussion purposes.)
This means Charity is only going to receive $9,750…a bad deal for Charity, in my opinion.
The question is: How much should Doris charge to her card so that Charity receives a net amount of $10,000?
This is a first-year algebra problem. In algebra, the unknown amount is always X. That’s the amount Doris should charge.
A 15-year-old freshman algebra student writes:
X – .025X = $10,000
The student writes this equation because [a] she knows to convert the fee from a percentage to a decimal number, and [b] she knows that this equation produces a figure for X that allows Charity to net $10,000.
I’ll give the answer for X next time (meanwhile, solve for X yourself), and then we’ll look at some other problem assets.
by Jon Tidd, Esq