Manage your charitable giving

by Philip Brewer on 4 November 2007 8 comments
Photo: Philip Brewer

Are you one of the people who responds to begging letters from national charitable organizations by occasionally sending money? I used to do that. In my case, it was mostly environmental organizations that I'd send money to. I'd send $20 or $35, depending on what I could afford. The problem is, that's a terrible way to support a charity.

Have you ever noticed what happens if you send money in response to a mail or telephone solicitation? You start getting more solicitations--and not just from the charity that you donated to, but from a dozen other related charities.

Give to the National Wildlife Federation and in just a few weeks you'll have begging letters from the Nature Conservancy, Greenpeace, the World Wildlife Fund, the Natural Resources Defense Council, and five more environmental groups that come out of the woodwork asking for money.

Give to Doctors without Borders and in no time you'll have Amnesty International, the American Civil Liberties Union, the Southern Poverty Law Center, and any number of other human rights organizations sending begging letters.

It's not that there's a problem with any of these organizations. The point is that it's a terribly inefficient way for you to use your charitable giving dollar. Responding to whatever begging letter catches your eye when you happen to have a few dollars to spare encourages all these organizations to spend a bunch of extra money designing more eye-catching letters and to send them more often, which just wastes their time and money, your time and money, and the paper and fuel needed to print and deliver the letters.

Far better to have a plan about where your charitable dollars should go.

Think

First, think about what you want to support. You've got limited resources, so you obviously can't support everything. If you've got just a little money, maybe it should all go one place. If you've got a bit more, maybe you can support several. But don't imagine that you do more good sending $10 to ten different organizations than you do sending $100 to one.

What should you think about? Here are a few ideas:

  • Where is the need the greatest?
  • How can I do the most good?
  • Where can I make a difference?
  • What are the biggest problems?
  • What are the most urgent problems?

When I get that far, I like to split the problem in half by deciding up front that I'll support some local charity and some national or international charity. It's not that the problems are greatest in my own home town--clearly there are more people suffering in Africa than in Champaign--and it's not that "charity begins at home," but that with the local charities I can be more sure that I'm actually helping. It may not be the most charitable thing I could do, but I find knowing that I'm helping matters. It may not matter as much as actually helping does, but it matters.

Mainly, though, think about where your passion lies. Health? Poverty? Education? Hunger? Conservation? What do you care enough about to commit to making a difference?

Investigate

Next is to investigate what your charitable options are. You can start with the begging letters that you get. Over the course of the year, open the begging letters, take out the calendars and return address labels and postcards and bumper stickers, and then file the actual letter that says what they do, together with the information on how to send in a donation. Late in the year, go through that file and pull out the names of the organizations that intrigue you.

Many people donate through religious organizations--a combination of a local church and a denominational service organization with national or international reach is worth considering.

Do a little research. Google the organizations and see what they say they do--and see what people say about them. It's not really practical to investigate their finances too deeply, but it's pretty easy to spot the out-and-out scam charities--the ones with a name similar to a legitimate charity, but that spend most of their money on fundraising and give only a token amount to their programs.

There are also sites specifically for investigating charities. Charity Navigator, for example, gives charities star ratings, and reports on their efficiency in turning donations into spending on their programs.

Do some research entirely on your own. Look to see if there's some obscure organization whose mission matches your interests very closely. There are great organizations that don't do mass mail fundraising.

Decide

The first step in deciding is to budget for charitable giving. The need, of course, is infinite. You probably want to give something, or you wouldn't have read this far. Somewhere between zero and the combined net worth of Bill Gates and Warren Buffet is what you want to give. The average American household gives about 3.1% of their income to charity.

The second step is allocating it to the organizations you've investigated. Don't spread the money around too much--far better to give a useful amount to one or two organizations than a trivial amount to several.

Many organizations let you assign your gift to some specific part of their mission--disaster relief for one specific region, for example. Although that's tempting, you should probably resist, unless you're donating such a large amount that you could be funding whole programs. Most charities take the wishes of their donors very seriously, and they will try to fulfill your wish, but unless you've picked the wrong charity, they know where the need is better than you do. In general, you'll do the most good by picking a charity that works in the area you care about, and then letting the charity decide how best to put the money to work.

Give

Some people like to donate a bit each month, or even through a payroll deduction, because it makes it painless. If you can commit to putting the money aside over the course of the year and then sending it out all at once, it make the process cheaper for the charity, and more efficient for you (in terms of check-writing and record-keeping).

I wrote earlier about using donor-advised funds to get the advantages of a private foundation without the paperwork. That's an especially good option for people whose budget for giving isn't stable from year to year.

There are ways to give that don't involve money, of course.

Volunteering is always good. There are very few charities that won't welcome with open arms anyone willing to commit to helping advance their mission. A few hours a year will make a difference. A few hours a week will make a vast difference.

In-kind contributions are only occasionally useful. If you own a paint store and let the local Boys and Girls Club know that you'll provide supplies to paint their building, that's useful. If, on the other hand, if you hear that there's no safe drinking water in East Nowheresville due to flooding, don't expect that lugging a 12-pack of water bottles to your Red Cross office is going to help.

Targeting your gifts to organizations that you select because you've done some research and support their mission is far more effective than haphazardly sending checks off to groups that happen to ask when you happen to have money. There's a little extra effort involved on your part, but your cash will do a lot more good. It's worth taking the time to make a plan.

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Guest's picture

Nice post, Philip.

I came to the realization a few years ago (after getting bombarded by phone solicitors seeking donations) that giving should be a proactive part of my life. Giving money (even if it is only $10 or $15 at a time) to all the drive-by charity pitches you get is not good stewardship.

Your post is very timely, since the volume of solicitations is about to dramatically increase as we head into the holidays.

Guest's picture
Guest

If you live in the UK try the charities aid foundation (http://www.cafonline.org/) - this is essentially a charity for charities and coordinate giving. You can even set up a special charity account, and they will sort out gift aid (i.e. tax refund) issues. There is a whole list of charities you can donate to anonymously on the site.

Philip Brewer's picture

Thanks--I should have mentioned anonymous giving.

There are plenty of reasons to give your name with your donation--you're recognized and thanked, you provide an example for people who know you, and it connects you with the local philanthropic community.

Having said that, it's also sometimes appropriate to donate anonymously, especially if you do not plan to donate again to that group. If you make an anonymous donation, they won't waste time and money soliciting you for further donations.

Thanks, too, for the UK link.

Guest's picture
Athena Franks

I think you forgot to mention to look up how much you can deduct, for your income, to get the maximum deductability. . bonus. Not sure how to word that.

Basically, in Canada it is better to give over $200 than under:

"A donor is entitled to claim the full fair market value of any gift made to a qualified donee for tax relief. In the case of an individual, the federal level of relief consists of a tax credit of 16% of the value of the gift up to $200 of annual gifting and 29% of the value in excess of this amount.[5] The true value of the tax credit is much higher since it also comprises an addition for applicable surtaxes and for provincial taxes. The net result is that the individual tax credit is equivalent to a full deduction at the top marginal tax rate, aside and apart from the first $200." -source

Guest's picture
Athena Franks

I think you forgot to mention to look up how much you can deduct, for your income, to get the maximum deductability. . bonus. Not sure how to word that.

Basically, in Canada it is better to give over $200 than under:

"A donor is entitled to claim the full fair market value of any gift made to a qualified donee for tax relief. In the case of an individual, the federal level of relief consists of a tax credit of 16% of the value of the gift up to $200 of annual gifting and 29% of the value in excess of this amount.[5] The true value of the tax credit is much higher since it also comprises an addition for applicable surtaxes and for provincial taxes. The net result is that the individual tax credit is equivalent to a full deduction at the top marginal tax rate, aside and apart from the first $200." -source

Philip Brewer's picture

I always hesitate to give tax advice here, because the rules are so complex (and they change so often), that anything I say is likely to be wrong for some people--and will likely be completely out of date in a year or two. Be sure to do your own research regarding how the rules apply to your situation.

As I understand the rules right now, a charitable gift to a 501(c)(3) organization is deductible from your income for tax purposes. There are limits, but they are large (nothing to worry about until you're giving away 20% of your income, and even then some gifts are deductible until you're giving away 50% of your income). You need to get a letter from the charity that states the value of anything that you received as a premium (coffee mug, tote bag, etc.), and you have to deduct that from your gift before taking the deduction.

There is always talk of a tax credit program, because the current tax deduction scheme is worth so little to people of modest means, but I don't think there's any such program at the federal level right now. Some states may have such programs.

Thanks for the info on the situation in Canada!

Guest's picture
Leslie

For the past two years I've worked in a company that has a workplace giving campaign offering us choices of nonprofits with United Way, Community Shares, and medical and environmentally specific funds. They also provided information on each nonprofit. Having all these choices in front of us allowed our family to:
-- sit down together and talk about our values and priorities (environment, women and children, homelessness, civil rights, health),
-- review our existing donations to see if they met our priorities (and weren't simply a response to an appeal we had received)
-- investigate new nonprofits that we'd become aware of through the workplace giving campaign
-- investigate the effectiveness of all the nonprofits on our list
-- decide on a total dollar amount to give, as a percentage of our total income
-- divvy it out across the categories
-- access an employer match that boosted our personal gift by 50%

Another advantage we've experienced throughout the year is that we no longer need to get into long conversations with telemarketers for our charities because I just say "We gave at the office. If you are on our list, you've received your gift and we've increased it by helping you access my employer match."

One downside: I've found is that some of my nonprofits are unaware that I have made my contribution. Somewhere along the line, the bookkeeping is such that my name is no longer attached to the gift. This means I have stopped receiving print information - which I want and use to tell more people about the nonprofit.

Guest's picture
Matt

For giving in developing countries I absolutely love http://www.kiva.org

They have setup a system where you can loan entrepreneurs money in developing countries which they use to develop their business and be sustainable. The great thing is that once the loan is repaid, you can loan that money to someone else.