Contrarian Thoughts on Charity and Giving

The following is a guest post from Free Money Finance reader Mike Hunt (someone whom I admire and respect – he regularly shares his wisdom in the comments.) That said, I generally disagree with the following tone and nature of this post and am not sure it’s even factually accurate in spots (such as in point #1 below.) But this blog has always been about highlighting and discussing different viewpoints on money issues and Mike has done a good job of articulating his position. I’ll let you readers decide and discuss where we go after you read it.

There have been several comments and posts on giving to charity & tithing.  I wanted to offer my personal thoughts and perspectives on why I don’t like to give to organized charities.

For the record, I do give to people who are in need but prefer to do this personally rather than giving to organized charities.  Sometimes I give to people directly, sometimes anonymously. On occasion I’ll donate my time and find that to be pretty rewarding and do donate money to temples and houses of worship and this is an organized non-profit. Nevertheless there are several reasons I prefer not to give to organized charities:

1. Most charitable organizations have a high overhead and the amount actually given to charity (whatever that means as there is no detailed definition of this) is often less than 50 cents on the dollar.
2. There is less feeling of goodwill back to you from an organized charity compared with individual giving, unless you can make a very big donation and then you will have a building named after you (until someone else gives a larger donation and the building is re-named later)
3. Once you give once to an organized charity, then you are often put on a list and harassed for more money, by people who are contracted out to send you letters and call you. You are not so much appreciated as are milked like a cow for further donations to the charity.
4. As someone who is pretty thrifty and looks to get high value for money when purchasing things for myself, I hate to see it wasted. Unfortunately I view many charities as big wasters of money.

In defense of organized charities one could say that a well run charity has a good economy of scale such that the donations are used more effectively than if it were to be implemented in a smaller scale.  Maybe the Gates Foundation is one such charity where the effectiveness is higher as Buffett was convinced to donate there.  However I haven’t found an organized charity where I’m a repeat giver.

Comments

[Dr Dean]

FMF, Mike makes several good points.
1) Some large charities do have high overhead and high staffing costs-that info is available on the net, if you want to check it out before giving.
2) Some charities do have an aggressive follow-up campaign-because it works.

However, to cure cancer-you will need a large organization-to feed a homeless person needs no organization-although money for food, frequently goes for drink instead. (maybe better to give to the food bank or soup kitchen...) So comparing the two has no value or meaning.

I did find it interesting, this post followed your usual well-written Sunday post, this time on giving-accident or on purpose???

[FMF]

Dr. Dean --

My issue is with this sentence:

"Most charitable organizations have a high overhead and the amount actually given to charity (whatever that means as there is no detailed definition of this) is often less than 50 cents on the dollar."

Specifically, I have trouble with:

1. I'm not sure "most" (translated -- at least 51%) charitable organizations have "high overhead".

2. I think that many organizations do have a definition of what they spend their money on (lok at Charity Navigator and they'll tell you).

3. The amount that actually goes toward doing what it's supposed to be doing is "often less than 50 cents on the dollar." I'd like to see some statistics on this. Maybe it's true, maybe not. Seems low to me.

The fact that it appeared right after my Sunday post was an accident (though an interesting one, huh?)

[Ken]

You might check out www.charitynavigator.com
They break down how much charities spend on overhead and admin costs.

[Christy]

#3 drives me crazy
"Once you give once to an organized charity, then you are often put on a list and harassed for more money, by people who are contracted out to send you letters and call you. You are not so much appreciated as are milked like a cow for further donations to the charity."
I donated to a mission who feeds homeless and those down and out. Not soon after, I'm receiving mail from 17 different charities asking for money as well. I always wonder how much they could help their organization if they stopped mailing me every four weeks and sending mailing labels and the like.

[FMF]

Christy --

That one kills me too...

[rq]

I get the impression that Mr. Hunt formed his conclusions without (or before) researching charities he might find worthy.

Regarding his reasons not to give:
1. I've given to charities that have overhead less than 10%. As others have pointed out, Charity Navigator gives these data.

2. I don't believe that a feeling of goodwill is a good reason to give. It may feel good to give to an individual, but that person may be wasting that money on something they shouldn't be buying: drugs for example. This is also true for organizations. You may give money with the intent to fight AIDS in Africa, but that money may end up going to some warlord. This is why I like the transparency of an honest charitable organization.

3. This one is true. I received a phone call last week from a charity I haven't given to in years.

4. Again, this doesn't appear to be supported by data. However assuming it's true, I wouldn't consider it a good reason to universally reject all organized charities. It simply means you have to look for one of the charities that isn't wasting your money.

[Old Limey]

My wife has discovered the "Joy of Giving" and is very generous to friends and family. She also, on occasion, gives donations of $25 or therabouts to some of the well known charities. What I have noticed is that once your name is on their list you get regular solicitations for further gifts and the solicitations come with all manner of small gifts, especialling mailing labels. We used to buy mailing labels, but those companies have been put out of business as a result of the "freebies". Especially since using electronic bill pay we now have enough mailing labels to last us each about three lifetimes and the original donations have long been consumed by printing and mailing costs.
Another pet peeve of mine are quasi-charitable organizations such as NPR, PBS and AARP. We help them out also but let's assume your subscription expires in March, they start mailing you renewal notices many months ahead, and by the time I pay it in March I will have received 4 or 5 renewal notices, each of which costs them money to generate. The only charity that I intend helping out in a very large way will receive money when I die. That charity acquires land in the San Francisco Bay Area that is suitable for recreational purposes. The sellers prefer to sell to them knowing that their beautiful land will not be gobbled up by real estate developers that will go in with their bulldozers and chainsaws to commercialize it and add some more urban sprawl. Instead, the rescued land will later be donated to county or state organizations that are responsible for providing beautiful parks for use by hikers (like myself), equestrians, mountain bikers, campers, or sometimes people that just want to take their dogs for a nice walk in the hills surrounding our beautiful valley.

[billyjobob]

I agree with the post. Many charities are almost like scams. Designed to enrich the people that are taking care of the money and only a small portion going toward the help that it promises to give to those in need. An example I have of this is one my sister was involved in. She did one of those things where you adopt a needy child from another country. You get back a picture of the kid and supposedly letters from the kid while you send money every month to the organization that is helping the child. My sister felt pretty good about this until she discovered that one of her friends that was also in this program, had adopted the same kid. Same picture and same letters were sent to both my sister and her friend. Telling how much the child appreciated there help and how good the child was doing. What it showed was that it was a bunch of baloney. The picture of the kid ..was just a picture of a kid. Any kid. Not the one you were supposedly taken care of. My sister quit after she discovered this.

That said. There are just a few organizations that I do trust to use your money honestly. The Salvation Army spends most of your dollars on actually helping those in need. Also the United Way does a reasonably job. I do not believe in giving to most religious organization. Often time that money is spent to either pay the pastor or..when he has enough ...to build or improve the church building and grounds. That's fine if you really need a fancy church to worship in. I'm not a real religious person. So for me that is not important at all.

[Paul Williams @ Provident Planning]

@billyjobob: Was that charity your sister donated to Compassion International or something else? Just wondering since I see a lot of stuff for them.

@FMF: I agree that #1 needs backup data. Most charities I've checked out have overhead that's at least less than 20% and sometimes much smaller. Anyway, with all the options out there, you don't HAVE to give to one that has an overhead of 50%. Additionally, if you want a standardized accounting of overhead expenses I'd check out the American Institute of Philanthropy. They go through charities' books to check all the accounting data and organize it according to their own standards. Here's the link: http://www.charitywatch.org/index.html

I donate often to Mennonite Central Committee, partly because they're connected to our denomination, but also because they have fairly low overhead and extensive follow-up programs (they don't just give people money and leave). They don't call us, and I asked them to stop mailing requests and use email instead. They've honored that request.

[david]

Last year after my dad passed away we were looking for a charity to contribute to in his name. I ran across an ad for the smile train (http://www.smiletrain.org) and we've made multiple donations since that time. As I sit here looking at the pictures of three children whose lives were changed I can say it's the best money we've spent.

Here's an article from the NY Times Freakonomics blog about the charity. http://freakonomics.blogs.nytimes.com/2006/11/08/smile-train/

[LeanLifeCoach]

CharityNavigator.com has forever changed how I will donate to charities in the future. Paul, thanks for the link to CharityWatch, I'll check that out as well.

Recently I also found a program www.SaveTogether.com that clued me into IDA's (http://bit.ly/8Q40MG). With these programs every dollar you donate to the individual goes to the individual, AFTER they have made progress on their goals. Plus in many cases every dollar you donate is matched by another organization.

[Greg]

I recommend local charities where those who run it are members of your local community. Even national charities usually have local branches.

Some charities specialize is particular needs. For example, Salvation Army has staff that deal specifically with homeless. They know how to spot and deal with scammers, drug addicts, etc. that many of us could have difficulty dealing with.

When giving charity directly, the recipient will often look to you as the solution for their needs. In the end, this can cause more problems than it solves.

Finally, I encourage charitable acts because it is the right thing to do. When doing right because it gives a good feeling, I am reminded of the quote by Prince Feisal in ("Lawrence of Arabia"): "With Major Lawrence, mercy is a passion. With me, it is merely good manners. You may judge which motive is the more reliable."

[Kyle]

I've heard even worse stats about most charities giving less than 50 cents on the dollar to the actual charitable cause, though I'm not about to go look them up as this isn't my post that needs researching. But, I think the author is right, whether he did his fact checking, or by accident.

The Bill Gates foundation does not allow direct giving. They do however, have a list of charities that they back that you can give to, and I would imagine they've investigated into those thoroughly enough to know they're not recommending you to one where 90% of your money is going to the CEO.

[DCS]

I'm afraid if you count every shady nonprofit boiler-room-fired "charity" then Mt. Hunt might be technically right that most (>50%) are less than efficient. However, there are tens, if not hundreds, of thousands of philanthropic organizations to choose from. So even if half are absolute scams, that still leaves thousands that could be efficient and worthy, right?

I've given a good amount to a local food bank several times in the past, and they don't even send me their newsletter. All I get is a confirmation of the donation (for taxes) and a little envelope if I want to donate again. Never sold my name either, and not one phone call. I will admit I have had less luck with another group, which initially was very good about that. I no longer support them. I can see how a bad experience could turn some off entirely.

One the other hand, for me, it seems that giving to "temples and houses of worship" could be very inefficient. They have overhead too, and if you are a member you should be contributing your fair share to that cost. However, if you're not a member and are simply trying to help the less fortunate, does the portion that goes to the Building Fund (or whatever) accomplish that? Unless it is earmarked for charitable work, it seems like that could be very inefficient for the outside donor.

I should point out, however, that I do not by any means intend this as criticism of Mr. Hunt's choices. I consider charity a very personal thing that is nobody's business but the donor's, the recipient's, and Uncle Sam (where appropriate). I only hope everyone thinks their decisions through as thoroughly as Mr. Hunt, and neither gives indiscriminately nor excuses not giving at all due to something they got in the mail, saw on TV, or surfed through on the 'net.

[FMF]

Kyle --

I've heard that all charities give 99% of their donations away.

Now, without the facts, who is right, me or you? ;-)

In other words, without the facts, it's just hearsay.

As others have noted, it's pretty easy to check a specific charity with Charity Navigator. In addition, if anyone is looking to give to a specific cause (feeding the poor, curing a disease, etc.) it's pretty easy to find a charity that gives most of its money away using CN.

[FMF]

DCS --

I thought about that too. But I didn't think it was using the numbers correctly (and Mike's very above-board in how he handles facts), so I dismissed it.

[J in FL]

First FMF, I want to say thanks for giving your audience a chance to express opinions so prominently! (and moreso since it doesn't necessarily fall inline with your views) Maybe we'll see more of this in the future? (if only you could convince Old Limey to write posts.. he seems to have quite a bit of wisdom to share :))

Anyways, my issue with this is simply that I think Mike should have offered direct citations to his four claims. I know there are websites (charity navigator, et al) out there with info about charities, but, for example, it would be good to see point #1 backed up with some documentation (there are actually 2 claims in point #1).

Essentially, my question is: where can I find the research that says it is true that "most charities" give less than 50 cents on the donated dollar?

[MC]

I'd like to offer a contrarian view to the contrarian view:

Overhead is a fact of life. Even charitable organizations have it: buildings and office equipment depreciate, and they have to pay the people who investigate whether the other people asking for money are actually legit. How could anyone expect this would only cost 1%? If you demand this, you're either very naive or just looking for an excuse not to donate.

Advertising: this is the way our society works. If you don't advertise, you don't get any attention at all. Would any of you donate to a charity you've never heard of, or never received a donation letter from?

Finally, even the very reputable charities (American Heart Society, Multiple Sclerosis Society) that support "research" into their disease of choice, do not actually support much research. The main reason is that research is extremely expensive and all of the charities refuse to fund the full cost of the research projects they'd like to support (ie they refuse to pay overhead costs of institutions where the work is done). I work at a major academic medical center and we are prohibited by the institution from accepting grants from any of these societies anymore because of this reason.

If you want to support disease-oriented research, you are far better off donating directly to the medical centers. All Universities and private medical centers accept donations, and you can target them to support whatever you want. Avoid donating through the private societies and you'll also avoid paying for the costs of organizing all those walk-a-thons and paying for the societies' advertising and overhead.

[Jim]

I certainly agree with point #3. That junk mail is an annoying waste of a charity's money.

Otherwise I think you can fairly easily avoid giving to a wasteful, inefficient charity by doing a little research. As others have pointed out Charitynavigator.org is a good resource. I do think it makes sense to be somewhat cynical about charities. So doing some research before you give is a good idea. Theres no reason to blindly trust people with your money simply because they are registered as a non profit. There are a lot of sham charities out there.

[Michael]

My wife has given small amounts, $5 or $10 to the March of Dimes a few times this year. We received another request several weeks ago but did not send anything. I was surprised about a week ago when we actually received another envelope from them with 2nd request stamped on the outside.

[billyjobob]

A lot of questions about how much goes to the actual charity. I just copied this piece from an article on this subject.

"The latest survey shows 110 registered solicitors operating in Washington between 2003 and 2004.

They raised $368, 446,788 dollars, but on average, only 49 percent of the money collected went to the charities they were paid to help.

The best performer was Coinstar, which gave 94 percent to its charity clients.

At the bottom was the Unique Equity, Inc., which does business as "Thrift Center" in Kent. The charities it represents only got 4 percent of the money it collected."

This was just from 1 study.

[KateMTP]

I think that it is better to give your time than to give money. I agree with most of the points and especially with the comments regarding mailing labels, etc.

[FMF]

Here's the link to billyjobob's article:

http://www.komonews.com/news/archive/4140206.html

It's unclear to me from looking at it whether or not they are talking about charities themselves or organizations that are hired by charities to do fundraising. As we've discussed the latter take a lot off the top of what they get.

And one last thing, it appears that the piece is lumping in "charities" like kids selling magazines door-to-door in their numbers.

[FMF]

Here's a piece from Charity Navigator:

http://www.charitynavigator.org/index.cfm?bay=content.view&cpid=400

The highlights:

"Among the over 5,300 charities rated by Charity Navigator there are many who spend your money wisely to carry out their valuable missions. Unfortunately, there are a few who operate inefficiently and irresponsibly and absorb donations that could otherwise go to benefit their more effective peers. A common thread among charities receiving low Charity Navigator ratings is these charities' reliance on professional, for-profit fundraisers that can keep anywhere from 20 to 90 cents of each dollar you give them."

And the summary:

"After reading this article, it should be clear that donors are better off when they can avoid professional, for-profit fundraisers and give directly to charities. Remember to always research a charity's spending practices before supporting their efforts to ensure that you are not giving a large portion of your gift to these outside fundraisers."

They also have a list of the best charities:

http://www.charitynavigator.org/index.cfm?bay=topten.detail&listid=18

http://www.charitynavigator.org/index.cfm?bay=topten.detail&listid=100

And the worst ones:

http://www.charitynavigator.org/index.cfm?bay=topten.detail&listid=20

[FMF]

Here's a list (at the bottom) of how to check on a charity's efficiency:

http://www.nationalbusiness.org/NBAWEB/Newsletter2009/2759.htm

[JimL]

I think Mike brings up very good points. By giving directly, you have eliminated the potential for funds to go to overhead expense. Also, there is a more personal connection when giving directly as well when you get a chance to see results firsthand.

[Joely]

I disagree with this post. A quick perusal on Charity Navigator can show you how the organization is being run. Also, in the case of one of my favorite charities to give Second Harvest Bank of my local county, I know my $1 donation is equivalent to much more due to economies of scale.

[Duane]

The key here is to exercise good judgment and to realize that there are good charities out there, but one needs to be a discerning giver. It is no different from any other non-trivial money transaction.

One point I might add is that while giving directly has zero overhead (which is wonderful) it is necessarily local. If you feel so moved to direct your aid toward poorer regions of the world an organized charity can be effective in this way.

To take up again the point on discernment, I personally give to Missionaries of Africa (missionariesofafrica.org) because each dollar equates into nearly a tenfold higher yield in human relief than most stateside charities can offer. They happen to be established for well over a century and are quite accountable. I offer this simply as an example.

[Crystal]

I give to Pughearts: Houston Pug Rescue. Since the 3 families who run it don't pay themselves a salary, 100% of donated money goes to the dogs...mostly vet bills. Most of the time they don't receive enough in donations just to cover their vet bills, so they throw in their own money too.

I love fostering and supporting them since I can see first hand how much it really exists just for the sake of dogs in need.

Thanks for all the links to find efficient charities! Those will be helpful this coming year.

[Amber]

It sounds like Mike has had an bad experience with a poorly run non-profit, which is a shame! I work for a non-profit (btw we most certainly DO NOT spend more than $0.50 of every dollar donated on overhead!), and so, here are a few tips:

*If you're making a one-time gift and don't intend to make any more to that particular charity, tell them up front that you don't want to be added to their mailing list. Any organization worth its salt will follow your wishes.

*You can also ask to not be included in their published donor lists...it's a way of recognizing donors for their generosity and I've had several tell me they like it...go figure! There are companies that do prospect research to compile databases of people who are "charitably inclined"...I'm not positive, but I'm pretty sure they get a lot of this information from these types of lists. Sometimes organizations will rent a list to help expand their reach in the community...it's called acquisition mailing. The hope is that if someone gives to one charity, they may be more willing to give to yours and that, long term, the organization will receive more in donations from acquired donors than the cost of renting the list. We don't keep any names unless someone responds to the mailing.

*If you're already on a mailing list and want to be removed, call or e-mail the organization. Give them your name and address and ask to be removed. (Please be polite about it...we aren't really sitting around our office maliciously planning to annoy you with junk mail...it's just that if we don't ask, we don't receive!) You may receive one more mailing if there's one already on the way out, but, again, most of us try to be very considerate of our donors wishes.

*As for overhead and general operating expenses, I have some pretty strong feelings about that which I won't get into here, but if you want your gift to go 100% to programs, include a letter with your check stating, "I want my gift to go to such-and-such a program". That will restrict your gift so that the charity cannot use it for another purpose.

Finally, I'd like to take issue with #2. My co-workers and I are very grateful for any donation we receive, be it $5 or $5 million. For example, we recently received a letter from a mother of an abused child saying that she really appreciates what we do in the community and that she was giving us what she could, which was $10. It was incredibly touching, and I promise you that her gift meant a lot to each and every one of us.

We try our best to express our appreciation to all of our donors. I don't think I'm alone in saying that if there is a particular way that you'd like the charity you give to to show their appreciation to you, just ask. I'd welcome a phone call from a donor telling me why they give to my organization and what they'd like in return...it would take a lot of the guesswork out of it!

[Mike Hunt]

Good comments on this thread, and thanks for being constructive and not flaming me!

I have had a few bad experiences with organized charities, mostly at the local level- just felt like the funds were being wasted like the way tax dollars are wasted, like they are taken for granted.

I didn't do extensive research before writing this, I had read a few articles 2-3 years ago that listed several charities with overheads greater than 50% so that was the basis for making the first claim. Charity Navigator is a good reference so thanks for linking this into the comments.

I've most often given directly to indigent people in my community but I don't necessarily support them 100%. For example, when I lived in Baltimore one of my neighbors was very old and poor but he did not want to move in with his children or go into a home- he refused assistance whenever social services would come by. I would buy him some simple groceries & staples every week and ring his bell and leave it for him. He wouldn't accept it from me directly as he was too proud but I would tell him it's extra from the weekly shopping and if he didn't want it then it would go to waste. I ended up bringing him food for several months until he passed away one day.

There are several other examples like that, I usually just give from the heart where it feels right. Before I give to an organized charity I will reference Charity Navigator to confirm it is efficient.

-Mike

[Apex]

I am concerned by the ability of large organizations to mask their actual operations. I mean we know that businesses (Enron, etc.) would never do such a thing or Banks etc, so clearly Charities (non-profit businesses) wouldn't do that right?

So something like Charity Navigator is nice, but it appears to be almost 100% based on a self assessment govt form 990. Who validates the valuations put on these forms? Unless auditted, no one does.

A large charity that has means at its disposal is not going to admit on that form that they are spending 60% or even 30% of their funds on overhead.

For example, many people are probably familiar with "Feed the Children" operated by Larry Jones out of Oklahoma. They advertise on TV all the time. Larry Jones just recently got kicked out of his own charity for taking bribes and having porn in his offices which he claims was research for a book. The porn is not necessarily an issue for the operations of the charity but the fact that he would claim it to be for research seems to indicate a pretty funny propensity to twist the truth which might be indicative of other operations in the charity as well.

Charity Navigator gives Feed the Children almost the highest rating of any charity on their site. 69.19 (70 is the highest possible score).

It shows their percent of funds spent on programs as a very solid 91.9%, very efficient. This is again based on the self reported form 990.

http://www.charitynavigator.org/index.cfm?bay=search.summary&orgid=3691

However the American Institute of Philanthropy rates them an F and says they only spend 21-23% of their funds on program services because it does not count gifts in kind and says that Feed the Children drastically inflates the value of gifts in kind to make their operation look efficient since on form 990 they can put any value on these they want. They claim they spend 63-65 dollars to raise every 100 and this does not surprise me given their TV advertising.

They claim Feed the Children purchased a 1.2 million dollar house for the founders daughter to live and work in, among countless other things:

http://www.charitywatch.org/articles/feedchildren.html

So the fact that Charity Navigator can give them almost the highest rating of any charity on their site tells me that the methodology that Charity Navigator uses has some issues and brings into question its reliability.

I just made a cash donation to a local food bank to help those who may be struggling during this tough economic time. I tried to research it as best I could and they work with Second Harvest where they claim a dollar will purchase the equivalent of 9 dollars of food. I can't verify any of that but I have heard good things about second harvest and I hope this information is accurate. I want to help out organizations that are doing good things to help out people.

The fact that there are complete shams like Feed the Children out there that can get the top rating on Charity Navigator makes it difficult to know how to get this information.

Any thoughts from FMF or anyone else on how to sort out things like what Charity Navigator says about orgs like Feed the Children versus what places that seem to dig a little deeper can find?

I have just learned through experience that trust should not be easily placed. Most people and orgs will do what they can to shine the correct light on themselves. I only need the full daylight of the truth but it seems allusive.

[Funny about Money]

In addition to checking into the charity's management, overhead, and practices, it's also a good idea to donate anonymously. Otherwise you are indeed likely to be pestered.

When I was young and naive, I let a neighbor in our apartment complex talk me into going door-to-door for an American Heart Association drive. The amount I collected was negligible, but I duly turned it in.

Within days, the telephone blitz started: call after call after CALL from every charity in the nation, trying to get me to go door-to-door for them, too, or, more to the point, to fork over my own cash to them. Some of them just didn't want to take no for an answer. I ended up calling the AHA office and this woman and telling them, not (I confess) in very polite terms, to take me off their harassment list and to tell their colleagues to quit bugging me.

It's one of several reasons I rarely donate to charities and, when I do, I keep my name, address, and telephone number out of it.