A recent poll found that charitable giving by Americans is at its lowest level on record.
Which isn’t that surprising, considering the, y’know, pandemic and unprecedented
unemployment crisis.
But with illness, hunger and social injustice gripping our country like never before, it’s
arguably a terrible time for donations to dry up.
Like many of us, you may have less money to part with in these tough times.
Or maybe you’re one of the lucky ones who still has a good income and feel obligated
to share the wealth.
Either way, we can make our charitable dollars go farther by being smarter about where we put them.
When it comes to charities, some are good, some are bad, and some are just flat out scams.
Traditionally, the main factor that determines this is how much of the money they raise actually
goes to people in need, and how much goes to administration, overhead and fundraising.
There are lots of organizations that track these numbers, like Charity Navigator or Give.org,
and they typically consider a charity to be “good,” if at least 75% of their revenue
ends up being spent on aid programs.
For example, the Breast Cancer Research Foundation spends 88% of their donations on actual research,
treatment and aid, while the Breast Cancer Relief Foundation spends only 3%.
Where does the rest go?
Think executive salaries, luxury offices, marketing budgets and fancy fundraising parties.
And while it’s understandable to want as much of your money going to direct aid as
possible, there are some limitations to judging charities this way.
Entrepreneur Dan Pallotta argues that the stigma against non-profits investing heavily
in salaries and advertising prevents them from competing for market share with for-profit
companies.
This, he maintains, is why charitable giving has been stuck at 2% of GDP for 50 years and
why non-profits have been unable to solve our biggest social ills.
There’s also a big disconnect between the spender of the money
and the beneficiary of the product.
If you buy a $20 take-out meal from a local restaurant, you will know whether you thought
the food was worth the price.
But if you donate 20 bucks to a soup kitchen, there’s no way for the people it serves
to tell you how well your money was spent.
While there is room for debate about what constitutes a “good” charity, there’s
no denying that some are outright scams.
These fleeting entities typically materialize online after a high-profile disaster, like
Hurricane Maria’s devastation in Puerto Rico, or Haiti’s 2010 Earthquake, and then
quickly disappear after collecting thousands or even millions of dollars.
They often directly solicit donations by email, phone or door-to-door, hoping to capitalize
on people’s compassion for victims before they have a chance to vet the organization.
The FBI estimated that most of the 4,600 charity websites that popped up after Hurricane Katrina
were suspicious or unverifiable.
A good rule of thumb is not to respond to direct solicitation unless you know you are
dealing with a reputable organization.
Ask for some literature or a website so that you can investigate the charity yourself.
Be aware that scams will often have names that are very close to familiar organizations,
so the exact wording matters!
Also, make sure you pay securely, like with a credit card or personal check.
If a charity asks for donations in cash, wire transfers or gift cards, that may be a red flag.
Of course, there are exceptions to this.
If you have a friend or a co-worker who is raising money on their own for a cause you
can get behind, using cash or venmo is perfectly fine.
Just know that you're trusting your friend’s administrative skills to get that money where
it needs to go.
Now that you know how to avoid suspicious charities, the next question is how to decide
which to support.
This is a very personal question depending on your individual passions and beliefs, but
there are some important factors to consider.
First, studies have shown that after a highly-publicized disaster, donations to related charities go
up, but charitable giving across the board does not.
This means that Americans aren’t necessarily giving extra money to these charities, but
rerouting their usual gift amounts from other causes.
When a lot of people do that at once, non-profit organizations not associated with the disaster
can suddenly see their revenues drop.
And some organizations may use high-profile disasters to raise more funds than they need.
In 2010, Doctors Without Borders stopped fundraising off the Haitian Earthquake because they determined
that they had enough money to operate at capacity.
But the Red Cross did not, raising almost half a billion dollars for “earthquake relief.”
Some of that went to plug up their existing budget deficit, and to this day they have
not fully accounted for how the rest was spent.
Now, we’re not saying that you shouldn’t give to big disaster relief projects.
But be aware that just because everyone’s attention is focused on a certain cause, that
doesn’t mean others have gone away.
In fact, that may be when they need help the most.
You should also be aware that Americans overwhelmingly give to American causes.
While it’s understandable to want to focus on helping your own country, keep in mind
that a dollar goes a lot farther in other parts of the world, like sub-Saharan Africa.
The “effective altruism” movement, which seeks to maximize the impact of charitable
giving, suggests that giving to global health organizations like anti-malaria initiatives
provides the most “bang for your buck” in terms of alleviating human suffering.
Deciding how much to give is also a deeply personal question, but these are the average
yearly charitable donations for each tax bracket from 2016.
It’s generally considered more efficient to give large amounts to a few organizations,
rather than small amounts to many.
The reason for this is processing costs.
Every time a charity has to digitally swipe your credit card, it has to pay processing fees.
If that’s say, $1 per transaction, then a $100 donation is only getting dinged by 1%.
But if you make 10 $10 donations, suddenly only 90 of your dollars are actually making
it into the charities’ bank accounts.
Perhaps consider doing the 50/30/20 rule: Of the total amount that you’ve decided
to donate, put half into one or two verified charities; 30 percent into community gifts,
like to your church or school or local food pantry; and 20 percent into impulse gifts,
like disaster relief or helping out a friend on GoFundMe.
And lastly, if you can’t give much or at all this year, you can still help by sharing
and promoting charitable campaigns.
Even though it’s estimated that less than ten percent of participants of the Ice Bucket
Challenge actually donated money, the ALS Association still raised over $100 million.
And that money directly led to new breakthroughs in diagnosis and treatment.
We know that it’s a strange and scary time for everyone, and it’s tempting to squirrel
every dime away in preparation for more bad economic news.
But there’s also more need out there than ever before, and even if you can’t give
as much as you used to, you might be able to make up the difference by doing it smartly.
And that’s our two cents!
Thanks to our patrons for keeping Two Cents financially healthy!
Click the link in the description to become a Two Cents patron.