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.
