Does your charity money actually do good?

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Nupur Gambhir

Nupur Gambhir

Senior Editor & Licensed Life Insurance Expert

Nupur Gambhir is a licensed life, health, and disability insurance expert and a former senior editor at Policygenius. Her insurance expertise has been featured in Bloomberg News, Forbes Advisor, CNET, Fortune, Slate, Real Simple, Lifehacker, The Financial Gym, and the end-of-life planning service Cake.

Published December 16, 2019 | 4 min read

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Charities receive a higher amount of donations than ever before, but is the $25 you donated to adopt a sea otter named Charles actually protecting him and his environment?

It can often be difficult to tell whether your philanthropy is actually making a difference.

However, your donations do mostly have an impact. Here are a few key steps to make sure your charitable donations are worth it.

Determine if the charity is legitimate

With over 1.5 million charities in the U.S. alone, it’s sometimes difficult to gauge where your money is going and if it’s actually helping. This is where charity watchdogs come in:

  • GiveWell assesses a charity’s impact per dollar. GiveWell maintains its own integrity by continuously updating its research process and even revoking charity recommendations when necessary.

  • Charity Navigator assesses a charity’s financial health as well as its accountability and transparency.

  • Charity Watch evaluates how efficiently nonprofits are at utilizing donations. They inform donors of any unethical practices a nonprofit may have.

  • Better Business Bureau dictates whether business and charities are meeting ethical standards. You can use their website to see if a charity meets the BBB’s standards for accountability.

Determine where your money actually goes

For legally recognized charities in the U.S., there are certain laws and regulations that ensure your donation money is used properly.

“Charities are subject to charitable trust laws. They are required to honor donor intent with respect to use of funds,” says James J. Hsui, an attorney and counselor-at-law for non-profits.

Watchdogs do the work of establishing if a charity is legitimate by evaluating their level of transparency, ethical practices and financial health. If you want to see the data yourself, a reputable charity should be able to provide that for you.

If a charity doesn’t have that information available, it’s probably best to avoid donating to them.

What about overhead?

A longstanding myth about the low impact of donations revolves around the word “overhead”.

Overhead costs shouldn’t deter you from donating to a cause you care about. Without these costs, a charity couldn’t accomplish anything at all.

Meet the charity forgiving millions in medical debt.

“Nonprofits often struggle to pay their personnel, and nonprofit personnel are often paid much lower than their equally qualified counterparts in the for-profit sector. They have families to support and bills that need to be paid. They deserve a living wage,” says Hsui.

Choose organizations that are backed by research

Consider donating to nonprofits whose actions are backed by research and quantifiable results.

“The best measure of impact is the results that the nonprofit is able to deliver. What difference did they make? How much added good have they created for society, the communities they serve, and the world?” says Hsui.

Organizations that communicate the data behind their processes and demonstrate results can “prove” your dollar creates a measurable impact.

GiveDirectly is one charity that uses research to drive its mission.

“We’re partnering with external non-profits and external academics, including one of the recent recipients of economics Nobel prize, to evaluate our work and analyze the effects of cash transfers,” says Joe Huston, CFO of GiveDirectly.

This holiday season, make sure to steer clear of charity scams. Here's how to avoid one.

Does a small donation make a difference?

How much of an impact can one person or one dollar make? A small donation actually has a large impact — it affords food, medicine, and housing to individuals who may otherwise not have access to basic necessities. Charities such as Coalition for the Homeless, which assists with affordable housing, food and work opportunities for the homeless population in New York, depend on every dollar they receive for their mission.

“Every single dollar makes a difference... we’re really dependent on donations of all sizes,” says Sarah Murphy, director of development at Coalition for the Homeless. “You’re not talking about even $100 or $50, we’re talking about smaller amounts and it makes a huge difference when you look at it. We depend on a large donor base because all of those do add up.”

The recipients of GiveDirectly’s funding live on less than a dollar a day. Small donations from many donors contribute to educational and work opportunities that may have otherwise not existed.

“Each incremental dollar generates...impact,” says Huston. “There is a sort of cynicism about giving, there is this feeling that... I’m worried I won’t achieve that much. But at least...where we operate, there is a handful of intervention that is backed by a ton of evidence that empowers people with a little bit of extra money to make a ton of impact in their lives on the side.”

Maximizing your impact

For Huston, maximizing your impact involves taking an investor’s approach and diversifying how you give.

“It’s helpful to think about (giving) the way they would a financial portfolio — what are the proportions I want to allocate to each of those things in my life and how important are they to me,” says Huston.

Planning out your charitable giving the same way you would an investment portfolio enables you to allocate donations in a deliberate way. You wouldn’t invest all your stocks in Apple — and you don’t need to donate all your money to just one cause.

A diverse donation portfolio allows you to maximize your dollar impact.

If you want to witness the results of your donation firsthand, consider donating to a local organization or volunteering within your community. Giving Tuesday compiles lists of local non-profits by area code. Volunteer Match connects nonprofits with people who want to donate their time.

Philanthropy is not one size fits all. Utilizing different charity watchdogs, engaging with your local community and figuring out where you want to see palpable change can empower you to give in a meaningful way where your dollar makes a difference.

Image: Vitaly Taranov