Episode 66 - Ethical Giving

Almost half of all charitable donations occur over the holiday season. That means that Canadians are currently considering where to direct roughly $5 billion dollars* to support good causes. Charitable giving is something that is deeply personal, reflecting your values and life experience. But there are some practices that everyone can follow to give well.

If you are thinking about giving to a charity, consider these four points:

1. Don’t obsess about overhead.

A lot of people use “overhead costs” as a tool for comparing charities. This approach assumes that better charities have lower overhead costs, but that is untrue. First, even though overhead costs are not directly connected to providing a service they can be very important indirectly.

It costs money to hire qualified, knowledgeable, trustworthy staff. It costs money to maintain equipment, plan for the future, and continually improve. These costs may legitimately be higher depending on what the charity does. Overhead costs can provide information about whether a charity is using its money effectively, but without context it can be misleading.

Look at overhead costs if you wish, but don’t use it as your only barometer of a charity’s effectiveness. Although extremely high overhead costs can signal a problem, for most cases it does not provide meaningful information about how much good a charity does. If overhead is more than, say, 40% of a charity’s activities, it may be a problem. Otherwise, don’t worry about it too much.

2. Think about effectiveness, but don’t rely on “effective altruism”

We all want to support good charities, but effective altruism is the wrong approach. Effective altruists commit to donating to the charity that can save the most lives for a given amount of money. It sounds compelling enough, but there are several problems with this line of reasoning.

First, there is no good way to compare the relative effectiveness of charities. This is chiefly because “impact” is much more difficult to measure for some causes than others. A charity that distributes vaccines will have a relatively easy time calculating how many deaths it has prevented. Measuring impact will be much more difficult for, say, a group that provides cultural awareness training to teachers working in First Nations communities. Even though we all intuitively know that this type of training will help teachers to be better at interacting with their students, proving what effect it has had would require long-term studies that are simply too expensive for most charities.

Effective altruism asks people to fund charities with an immediate, direct, and observable impact – to the detriment of equally worthy but more difficult to measure causes.

But even if we could find a good way to measure and compare the relative cost per impact of different charities, we shouldn’t. Some of the most vulnerable beneficiaries are also those that are the hardest – and therefore most expensive – to reach. Charities should be trying to reach the people that need their help the most, even if it is more expensive.  

Moreover, it is perfectly legitimate for you to give to a charity because it is in your community or because you feel personally close to the cause. Donating money is a financial transaction but it is also a way that you connect to a community, whatever that happens to be. You should feel personally connected to your donation.  

If you want to donate to a big charity, the Money Sense rankings could be a good starting point. It rates Canada’s 100 biggest charities not only by efficiency, but also fundraising costs (slightly better than overhead costs), transparency, and financial sustainability. The ranking is imperfect, but it could be a good starting point if you need ideas about where to donate. Another option is the Charity Intelligence rating.

3. Think about setting up a monthly donation.

One-time donations are a mixed blessing for charities: even though they are happy for any contributions, it is difficult for charities to plan when giving can be episodic and finicky. A charity that receives a lot of donated money at one time might be pressured to expand its services, only to find that it cannot afford to sustain new programs when donations drop off in future months and years. Bigger charities can often absorb these cycles, but small and local charities may have a much more difficult time.

This is especially true when giving is prompted by an emotional reaction to specific events, because the way that people feel at that moment is unlikely to reflect their giving practices in future years. For instance, after the US Presidential election John Oliver encouraged people to donate to a nonprofit investigative journalism organization called Propublica. After that show ProPublica’s donations increased to “about 10 times the rate” to which the organization is accustomed. Obviously, ProPublica is not complaining about the windfall. But it may face difficulties in future years if givers fail to provide the same level of support.

You should think about charitable giving as a commitment to an organization. One option that many charities offer is the monthly donation. You won’t be locked in for life, of course – you can end your monthly contribution at any time – but the regularized monthly installment of, say, $20, is something that the organization can use to plan its activities for the future. That stability means your dollars go further.

If you are going to do a one-time donation, think about the charities whose need will be the greatest right now. Charities experience increased demand for their services in times when communities are doing the worst, and this can also be the time where they are the most financially strained. For example, local nonprofits in Fort McMurray have had the double burden of dealing with financial strain from the wildfires while simultaneously facing unprecedentedly high demand.

4. Consider donating to a less sexy cause.

Some causes are consistently overfunded, while others are consistently underfunded. Even though donations should be personal, take some time to think about which important cause needs your money the most. For instance, breast cancer receives the most research funding even though other cancers – notably lung and colorectal cancer – kill more people. Pulmonary disease, diabetes, suicide, and heart disease are bigger killers but receive less donated money than breast cancer. 

 Researchers have found that charitable donations generally do not help the poor: more charitable dollars go to projects that benefit the middle and upper classes. That is because a lot of people donate to causes like universities, art galleries, and schools in suburban neighborhoods, which are often not accessible to the poor.

The most underfunded charitable causes tend to be those that deal with aspects of society that we do not like to talk about. Some examples include shelters for victims of domestic violence; legal aid clinics; and mental health charities.

Although it is legitimate to donate to causes that are personal to you or affect your community, you might want to think about where your charitable dollars are most needed.

*Based on 40% of $12.8 billion, the annual total contributions for 2013.