You’ve been asking charities the wrong question
How to make sure your end-of-year donations will have an impact.
Preparing for the holidays takes a lot of time. On average, each American spends 15 hours attending holiday parties and more than seven hours traveling among our holiday-related destinations. We spend three hours wrapping gifts that it takes us 15 hours to buy. But when it comes to deciding where to make our charitable gifts, we do little in the way of homework, often relying on a personal experience, a nonprofit's name recognition, or the well-meaning suggestion of a friend. Most people don't even do that much.
Americans gave nearly $360 billion to charity in 2014, the highest total in the 60 years the group Giving USA has conducted its survey (the improving economy was one factor in the increase). Yet two-thirds of givers spend no time at all researching the best places to put their money.
For those givers who do at least some research, the first, and often only, thing many want to know from a nonprofit is "How much do you spend on overhead?" As a nonprofit executive, fund-raiser, and grant-maker, it leaves me wanting to hang my head in disbelief. It's not just that the question isn't really useful, but that too much focus on it can undermine good charities.
Overhead is a loose term, but generally refers to money spent on things that don't directly help the people the nonprofit serves, such as electricity, office supplies, administrative staff, and executive director salaries. Feeling that nonprofits are spending "too much" on overhead, many of us put conditions on our gifts, with instructions such as "I don't want my gift to pay for salaries" or "I want 100 percent of my gift to go directly to the children." But restricting our gifts in this way makes it difficult, arguably impossible, for nonprofits to carry out their missions.
While it's true there have been cases of mismanagement in nonprofits, the focus on overhead has become an easily digestible substitute for meaningful research. Overhead on its own says nothing about the impact a nonprofit is having. An organization that spends 20 percent of its revenue on overhead expenses is not necessarily making more of a difference than one that spends 30 percent on overhead (in fact, the opposite tends to be true).
The fact is that nonprofits are businesses that put their money toward providing a social service. To deliver the highest-quality service, a nonprofit, like any company, must pay competitive salaries, invest in technology, and, yes, raise funds. This behind-the-scenes activity can be the difference between helping 100 people and helping 10,000.
If "What is your overhead?" is the wrong question, then what is the right one? It's "What is your social impact?"
You shouldn't expect a single, simple statistic for an answer to this question (if you get one, question it). But you should expect a clear answer. The nonprofit should be able to explain the problem it is trying to solve and how it is doing so. The evidence of impact should make sense to you.
When I'm trying to understand the impact a nonprofit is making, I start with the acronym SMART. The organization's goals should be Specific, Measurable, Actionable, Realistic, and Time-bound. For example, it isn't realistic that a small nonprofit will forever break the cycle of intergenerational poverty with an after-school tutoring program, but it can improve educational outcomes in a given amount of time and in a quantifiable way for the children it serves.
This year, stop thinking of a charitable donation as giving and start thinking of it as buying. Buying is different from giving — when you buy a product, what matters most is how well it works, not the overhead of the company that makes it.
Charitable buying also encourages a sense of ownership. You bought it, it's yours, and so you should take care of it. One key is to stick around after the Giving Season is over. For many charities, this sprint to the end of the year is critical. About 30 percent of charitable gifts are made during the hectic month of December — more than 10 percent during the last three days of the year — and only a quarter of us will give to the same nonprofit two years in a row. But to truly support a nonprofit, you should try to make longer-term financial commitments. And keep 100 percent of your donation unrestricted.
It's easy to think that your giving is a drop in a bucket, that small donations don't really matter. They do. Foundation giving earns headlines and corporate sponsorships take center stage, but every person counts. Of that $360 billion that Americans gave to charity last year, more than 70 percent came from individuals, people like you and me.
So this year, write a smarter check and know that your giving has an impact.
BY THE NUMBERS
2014 US giving sources
> Individuals — $258.51 billion
> Corporations — $17.77 billion
> Bequests — $28.13 Billion
> Foundations — $53.97 billion
Source: Giving USA