Friday, February 26, 2010

Annabella's Story

A friend (let's call her Annabella) related the following true story to me, which happened to her in the weeks leading up to the project:

Annabella's boss was taking part in a fundraising activity where he was "arrested" and had to be bailed out, with the money going to a muscular dystrophy children's charity. On that cold Tuesday morning off he went to the restaurant that served as a "jail."  The company would match the funds raised by employees.

When Annabella was asked to donate, she pulled out her checkbook. She wrote a check for $50. She was generous in donating things (to Salvation Army and similar organizations), but rarely did she designate actual money toward charity. As she wrote the check, she thought about other expenses she had. Her garage door had broken just the day before, and that morning she'd gotten a quote of over $700 to fix it. Living through a harsh Detroit winter, this was not an optional expense; she needed to be able to park in the garage. She also needed dental work, a new crown, that was going to cost her about $550. Still, she knew that she had a tax rebate coming which could help her with those expenses, so she could afford to give the $50 ... but she was in a position where giving away $50 stung a little bit. She donated the money and went on with her business.

Later in the day, she called her condo association to get some information about the specifications for her garage door repair. She didn't want to get the wrong color or style, accidentally violating the condo regulations. Also, she thought, maybe the condo association had a deal with a specific repairman who could replace the garage door at a lower rate than the one that she had been quoted.

The woman she spoke to at the condo association told her that they'd look into it and get back to her later. Two hours later, Annabella got a call back.

The condo association had decided to take care of the full cost of repairing or replacing the door.

Although it could be argued that the the problem arose from the original installation, Annabella has lived in the condo for about 6 years and the original builder has long since gone bankrupt.  The woman from the condo association offered no reason why the condo association had made such a strange decision, nor was Annabella going to tempt fate by asking questions. She hung up the phone, somewhat in shock, because only hours after donating $50, which she almost didn't give because of the garage door, she had received the alleviation of a $700 expense.

This happened on a Tuesday. On Wednesday, the association's contractor came out to evaluate the repair needed, and agreed that a whole new door was required.  However, her garage door was very drafty, which made it uncomfortable in those Detroit winter mornings when she went out to start the car. Since she had gotten the new door for free, she asked how much extra it would cost to get an insulated garage door. The cost was $180, so she agreed to it. She was still over $500 ahead, and she would end up with a better situation than she had before. Instead of a flimsy metal door, she had a solid steel garage door with insulation, which no longer showed the light from outside and let the air flow in.

Then she went to her dental appointment.  As the dentist did the preliminary work and installed the temporary crown, Annabella listened to him talk, and it was clear from what he was saying that it took more work than he had anticipated. When it was all over, he took off his mask and said, "I'm not charging you for the post & core (the preliminary work).  The fee for those is $250.  I'm not charging you for that."

This time, however, there was a reason. The crown appointment had originally been set up for September, and had been pushed back five times until the end of January. One of these cancellations had been because the dentist's wife went into labor with what turned out to be a lovely daughter.  Through all of this, Annabella had been very understanding about the delays. (She was actually somewhat thankful when these delays happened, since she literally looked forward to it about as much as a root canal!)  The dentist just decided that since it had taken so long, and she'd been so nice, he'd cover the expense.

On Friday morning the garage contractor arrived.  As he began, his supervisor called Annabella to offer her an extra add-on to the installation.  It was a small detector, which had a red and green light. When the garage door was closed, the light was green; when open, the light was red. This meant that when she was upstairs in her second-story condo, she would know for sure if the door was open or closed without having to descend her narrow stairway into the garage itself to perform a visual inspection. The cost for this add-on was $45.

Annabella declined, because she really didn't need the extra expense.  Still, though, she has a roommate, which means she sometimes might genuinely not know for sure if the garage door was left open. And she is the sort of person who occasionally gets anxiety about such things.  Annabella, a smoker, regularly goes through her apartment checking ashtrays to make sure there are no smoldering flames before leaving the apartment. So a mounted indicator that can verify that the garage door is indeed closed would have been a big help. But it wasn't essential, so she decided to avoid the expense.

When the installation was done, however, she noticed a small red/green indicator light mounted in her condo. She told the repairman that she hadn't wanted the indicator included. He said that he knew, but when he called it in to his boss, the boss had said to go ahead and install it anyway, at no cost. Again, there was no real explanation for this.

So Annabella had gotten her garage door substantially upgraded, and instead of nearly $1,000 it would have cost to install all of this, it cost her only $180. A savings of  $800!

In Annabella's words, "It just went from serendipity to spooky." Within 48 hours of donating $50 to charity, she went from having to shell out over $1,250 ($700 + $550) in garage and dental expenses to paying only about $500, but with an extra $225 value over the garage door she would have ended up with!

Now, if there were actually a causative link between the donation and the savings - if this is somehow the "karmic bank" kicking in - then Annabella saw an astounding return on her "investment." A $50 donation resulted in $700 worth of savings. So $700 divided by $50 results in a 14-fold increase (an 18-fold increase if you count the extra value from the insulated door and the indicator).

This is a better return than anyone on Wall Street can bank on, including Warren Buffett, one of the greatest minds in modern finance. Of course, now that I think about it, Buffett has donated 85% of his wealth to those in need. Maybe he knows something that we don't.

Maybe he is banking on precisely the same sort of return that Annabella saw.