While Australia is geographically on the other side of the world from Ukraine, we are not unaffected by international events. Many of us want to do what we can to support people directly affected by the Russian-Ukraine war, and our individual choices to support organisations can make a difference. 

But how can we trust our donations will be used effectively?

The two questions every donor needs to answer for themselves are:

1. What activity do I want to support, and
2. Is this charity actually doing the work it proclaims to?

What activity do I want to support?

Things to consider include 

• What kind of charity work is actually useful in wartime? 
• Are some more effective than others? 
• What aligns with my values?

There are a wide range of charities involved in many different activities to help the people of Ukraine each in different ways. For example, some organisations such as the United Nations High Commissioner for Refugees are focusing on helping the hundreds of thousands of refugees fleeing the war, many of them mothers and young children. Others such as the Red Cross are more centred on providing emergency relief, including food, shelter, water and hygiene kits. Another avenue is to donate to organisations such as Medzua (a Russian online newspaper) and OVD-Info (a Russian human rights service) who are fighting to provide balanced and truthful media to Russian citizens about the war and help support internal Russian protests. It’s up to you to decide what activity aligns with your values  and what you want to support.

Yet another alternative is to focus on challenges that existed before the Russian invasion, whether centred in the Ukraine or elsewhere. There are many causes both globally and locally that need support, and that should not be forgotten.  

Is this charity actually doing the work it proclaims to?

Things to consider include:

• Is the charity legitimate?
• Who is actually doing work on the ground?
• How accurate is the information I’m getting?
• Can I trust a charity is accountable and transparent with the use of donations?
• What might happen to the funds if Russia overtakes Ukraine in the next few weeks?

These are tough questions to answer and much is unknown. As events are unfolding and change happens so quickly it is important to find an organisation you trust to use your donation as intended. 

A key step is to avoid scams. While most people are genuinely compassionate and want to do what they can for others, some are using this crisis for personal or organisational benefit. There are a number of charity scams to beware of. They tend to centre on making emotional appeals for solidarity with the people of Ukraine, tugging at our heartstrings, trying to take from our purses. If you look into these organisations, they tend to provide very vague claims about how donations would be used. It is important to do your research before giving any donation, so you can be confident it ends up in the right hands. Tips to avoid scams include researching the organisation to ensure it is legitimate, giving via credit card over a secure website (charities asking for wire transfer are a red flag) and avoid any undue pressure or urgency to give unless you are comfortable and confident in doing so. 

To assess the legitimacy of an Australian charity, check if it is registered with the Australian Charities and Not-for-profits Commission (ACNC). You could also consider donating to a charity accredited by the Australian Department of Foreign Affairs; these organisations partner with and receive funding from the Australian government and are considered by the government to be “highly effective, professional and well managed”. 

If you are looking to donate to a charity outside of Australia, it is worth investigating whether it is registered with its relevant local charity regulator, such as the UK Charity Register or the US IRS. Otherwise it is well worth researching the organisation as much as possible before making a donation. 

It’s also a good idea to seek out well known organisations who have a history of working in the humanitarian space (such as the Australian Red Cross) and/or a history of working in the Ukraine (such as charities that are part of the Emergency Action Alliance). These organisations will have the experience to move quickly, especially if they can show prior effective results.

We recommend using ChangePath to assess Australian charities ability to achieve results, show transparency, and achieve financial efficiency. ChangePath allows you to really understand the impact of a charity, and you can compare options to make the best decision on which organisation to support, making sure your donation has the most bang for its buck. 

While knowing where to donate is a complicated question, don’t ignore the urge to do your part to make a difference. Only you can decide whether the best course of action is to donate to this cause, or another. Your compassion and generosity is what will lead to a better world, and that is worth taking the time to think through your options to achieve.

Further reading

Department of Foreign Affairs, List of Australian accredited non-government organisations (NGOs) https://www.dfat.gov.au/development/who-we-work-with/ngos/list-of-australian-accredited-non-government-organisations

ChangePath https://www.changepath.com.au/beta/search.php

Welcome to our five-part series on how to decide where to donate effectively. We’re going to go on an in-depth journey through the psychology of donations, the best ways to tell whether a charity is good at what they do, and how to actually give most effectively.

1. What drives donations
2. Choosing a cause to support
3. Good ways to choose a charity
4. Bad ways to assess charities
5. The best ways to give

In our last post, we talked about some key metrics you can use to find a charity that is likely to make a strong impact with your donation.

But there are other ways that people use to decide which charity to donate to. These are the metrics that we don’t recommend, and why.

What is a charity?

Many of the worst offenders for charity metrics are based off a fundamentally poor understanding of what charities do and are.

Charities exist to make change to the world. What this looks like depends on the cause they are attempting to solve, but in general they take in money (from donations, government grants, or delivering services) and spend that money in the way they think will best improve the cause. Any money not spent is saved for the future. This all seems rather obvious, but it’s important to start with this fundamental premise.

The overhead ratio

You’ve probably heard of the idea that charities that spend less on overheads are ‘better’. It’s one of those pernicious ideas that’s wormed its way into the collective wisdom and is very hard to kill.

The basic argument goes like this: I want as much of the money I donate to be spent on the cause. Overheads are money that charities don’t spend directly on the cause. Therefore, charities that have the lowest overheads are the best to give to.

The intention is the right one, but the problem is that it’s wrong. Entirely, completely wrong.

What is an overhead? It’s easy to think of overheads as ‘waste’ but they’re not even remotely equivalent. Overheads are things like:

• Auditors and accountants
• Legal advice
• Training
• Providing services (e.g. running a shop)
• Technology
• Measuring and evaluating whether their programs are having an impact

None of the above is waste, especially if you are interested in charities being effective with the dollars they spend.

There are many reasons for different charities having different levels of overheads. Some ways of affecting a cause are more ‘admin-heavy’ than others. To take a spurious example, say there are two charities that want to encourage kids to read. One of them coordinates reading groups at local libraries, which requires a lot of administrative effort to contact the libraries, promote the programs, schedule the groups, and so forth. The other charity just sends people randomly out into the street to shout ‘YOU SHOULD BE READING’ at passing children.

The second charity, YellingForReading, would have a significantly lower overhead ratio. Every dollar you give them is spent directly on having people out there yelling at kids. That doesn’t mean they’re being more effective at actually improving literacy levels.

For you to believe that the overhead ratio is a good way to decide which charity is doing well, you need to assume:

1. There is no value in having an effective organisation
2. The way of affecting a cause that needs the least staff is always the best
3. Measurement and evaluation are a waste of money

I would argue that all of the above are false.

I’m not saying that there’s no good way to tell charities apart (that’s what the last article was about). It’s not that more overheads are actually good. It’s that there’s no correlation between how much good a charity is doing and its overheads [act_tooltip title='(1)’ content=’See https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4179876/‘]. They’re almost completely unrelated. Indeed, there’s some evidence to suggest that good charities spend more on administration [act_tooltip title='(2)’ content=’https://giving-evidence.com/2013/05/02/admin-data/‘].

This is important, because we don’t want to see what happened in the USA repeat itself in Australia.

What happens when donors make decisions based on the overhead ratio

America has a rather different charity sector to Australia, with a significant amount more personal philanthropy. For whatever reason, the myth of the overhead ratio put down its roots there in a very significant way, leading to what the Stanford Social Innovation Review called the “Nonprofit starvation cycle”. Charities were trying to spend so little on overhead it was actually making them less effective as organisations. It was even jeopardising their very existence.

The cycle is described like this:

“The first step in the cycle is funders’ unrealistic expectations about how much it costs to run a nonprofit. At the second step, nonprofits feel pressure to conform to funders’ unrealistic expectations. At the third step, nonprofits respond to this pressure in two ways: They spend too little on overhead, and they underreport their expenditures on tax forms and in fundraising materials. This underspending and underreporting in turn perpetuates funders’ unrealistic expectations. Over time, funders expect grantees to do more and more with less and less—a cycle that slowly starves nonprofits.”

Stanford Social Innovation Review

This got so bad that three of the largest charity-rating organisations in the US banded together to counter what they called the “overhead myth”. You can read their open letter to donors here. http://overheadmyth.com/

If you’re still not convinced, I’d highly recommend this TED talk by Dan Pallotta entitled “The way we think about charity is dead wrong”.

Why pay charity staff?

Another bad metric is to ask how much charities pay their staff, especially their CEOs. This is a tricky one, because it’s a bit less cut-and-dried than the overhead ratio.

But we’ll start at the easy part – why charities need paid staff at all. There remain people that are sceptical about charities needing to pay staff. Why do people not just do it out of the goodness of their hearts? Surely there’s enough volunteer labour to go around. And there’s a grain of truth to this – a huge number of smaller charities (ones with only a few people) are run entirely by volunteers.

And yet charities are organisations like any other. And organisations take time and effort to lead and control. The Red Cross, for example, has a revenue of over $900 million and hundreds of staff. It is, objectively, a large and complex organisation doing important work. There is absolutely no doubt that it needs staff with extensive experience working full-time to keep it operating.  

There’s a more fundamental question at play here – wouldn’t you want the charity to be using the best staff it can? Volunteers are essential, the backbone of the charity industry. But there are tasks that it would be simply unreasonable to expect a volunteer to do, and the charity will get far better results by paying someone skilled to do them.

As to what CEOs should be paid, there’s complexity here. Charities operate out of the same job market that for-profit organisations do (except, perhaps, slightly more rarefied). If we assume that a good CEO will lead to a more impactful charity than a bad CEO, then it is in a charity’s best interests to get a good CEO. Yet CEO pay in the private sector has, for a variety of reasons, shot up far above previous milestones over the last few decades. And while charity CEOs are generally paid a deep discount compared to their private sector colleagues, they are still swimming in a similar pond.

From another perspective, the way our society values different forms of labour is difficult to comprehend. The average pay of the CEO of a cigarette manufacturer is (very roughly) about $7m. The corresponding average pay of a charity CEO is about $110,000. One of these people is devoting their life to attempting to improve the world, the other one is selling an addictive product that kills people. It’s perverse.

All told, while charities should be able to justify the pay their senior management receive, it should by no means be considered a black mark to pay them well. Being able to offer competitive rates means that a charity can get high-quality employees and create more impact. Hobbling a charity by insisting it pays far less than its employees are worth (or, as some think, not at all) just means you are decreasing the likelihood that it will be a success.

Charities (mostly) spend their money wisely

A lot of negative media coverage comes down to shaming charities for spending their money ‘wrong’. This is also at the heart of the overhead myth – the lack of trust that the charity is using your hard-earned money wisely. At a purely emotional level this is understandable. Nobody wants to think that the money they gave to a charity for starving orphans was actually spent on an office chair rather than food, even though chairs are quite important for the staff to do their job saving orphans.

At the root of it is a question of trust. We’ve been taught, by the media and by society at large, to be cautious and careful and suspicious of people asking for money. Indeed, Our trust and confidence in Australian charities is declining, with now only 20% of people agreeing that most charities are trustworthy. (2017 ACNC report). There’s a perception that there’s no end of scammers and ne’er-do-wells out there. And it’s true, if you give your money to every poor starving Nigerian prince who sent you a nice email, you may not get the social impact you were hoping for.

But the ability to trust that a charity is capable of deciding how best to spend the money you give it is important. To believe in the overhead ratio is to believe that you know, better than the charity does, the best way to spend funds on the cause they exist to fight. Charities are organisations built to serve a purpose, to fulfil a need. They are filled with passionate people trying to solve that need.

This may sound a bit rich, coming from a charity assessment website. And yet none of this is to say that some charities are not better than others. They are – that was the point of the last article. It’s just that using the overhead ratio or their staff costs are terrible ways to tell whether a charity is better than another. All the other methods are harder, and more time-consuming, or involve the charity spending money on measuring their impact. This is why the overhead ratio is so pervasive – it’s seductively simple. It takes a complex idea and reduces it down to a single, simple (but ultimately wrong) number.

Welcome to our five-part series on how to decide where to donate effectively. We’re going to go on an in-depth journey through the psychology of donations, the best ways to tell whether a charity is good at what they do, and how to actually give most effectively.

1. What drives donations
2. Choosing a cause to support
3. Good ways to choose a charity
4. Bad ways to assess charities
5. The best ways to give

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Give if you want to

What we are about to outline is an intensely rigorous approach to choosing which charity to donate to. Realistically, it is a lot of work. So let me lead with a simple maxim – you should give to a charity if you want to. If a friend of yours asks for a donation because they’re running a marathon backwards or something and you want to support them, don’t let this article hold you back. Donate to the cause and enjoy doing so.

Why would I say this, when the entire point of this series is to teach you how to be more effective and thoughtful in your donations?

I say it because no matter which charity you donate to, your donation will likely do some good. Not only will you feel happier after donating, you will certainly do more good for the world than if you spend the money on, say, biscuits. Some charities will do more good than others, for sure. But they will all do more good than you spending the money on yourself.

This guide is to help you decide how to decide between charity A and charity B. But if it’s a choice between giving to charity A and buying some biscuits, just give. The last thing I want is for anyone to read this article and donate less.

A simple maxim

I’m a big fan of Michael Pollan’s food rules (eat food, not too much, mostly plants). They’re a simple summary of some complex ideas. So, in that vein, here are some rules for donations:

• Donate to charities.
• Not based on ratios,
• But on if they measure their impact.

Let’s explore each of these in turn.

Do not pass go

But first – have you decided that the cause that you most care about is human poverty? If so, I have good news! You don’t need to do any of the following steps, because some amazing organisations have done it already for you.

Go visit Givewell, look at their recommended charities, and you’re set. Givewell have spent a substantial amount of time and effort to identify charities that do amazing work and will mean that your donation will help organisations leading substantial change.

Everyone else, let’s get practical.

Narrowing down to a shortlist

Even once you’ve chosen your cause, a brief Google search or even a look around ChangePath will reveal a huge number of charities working in that space. So before we start looking deeply into individual charities, let’s set some broad filters to get down to a shortlist.

What size charity are you looking for?

Think about whether your cause benefits from scale. For some causes, it can be sensible to donate to larger charities as they have the resources to make an impact. Medical research is like this – it costs at least $100,000 to fund a single research project, and grants often run into the millions of dollars. Smaller charities can be stuck in a situation where they can’t fund research at all. Whereas there are other causes where being small is good – for instance a cause focused on a local area or cultural group. Being small can provide focus.

What should the charity do?

How do you wish to affect your cause? Causes can be affected in myriad different ways. Take heart disease for example – one charity might focus on prevention, helping to educate school kids and make sure they do exercise. Another might focus on medical research, hoping to save lives in future. Both are entirely valid ways for a charity to spend its efforts, and it’s up to you which you would prefer. This may come back to your preference for helping people now vs later, which we discussed last post.

Make sure it’s a charity

First, you should do some basic due diligence. Check that the charity is registered with the ACNC. If it isn’t, it isn’t a charity. It’s also worth checking that it is up-to-date on its reporting to the ACNC.

Though, importantly, being registered as a charity doesn’t automatically mean it is tax deductible. You will need to check the ATO ABN lookup page for that.

What makes a good charity?

Be warned, there is no easy answer. Finding a good charity is more than star ratings. There are a lot of very difficult questions to investigate.

Now that you’ve chosen a cause, you want to find an organisation that will make the biggest impact on that cause. So how do you tell if an organisation will have an impact?

Checking the evidence base

The first way to identify a good charity is by the evidence base behind what it does.

Why is that important? Let’s take an example – a charity that wants to reduce the number of people that binge drink. They decide that one of the ways that they can do that is by putting up posters in bars talking about the evils of binge drinking. To try and get additional funding for their ‘posters in bars’ program, the charity runs a trial. They want to see how effective it is. So they run an experiment, where they test how much people drink in bars with and without the posters.

This is a real study, done by the Drinkaware Trust in the UK. What they found was that having the posters up in a bar didn’t mean people drank less.

They drank more.

Why? The study [act_tooltip title='(1)’ content=’ https://www.lsbu.ac.uk/stories/research-helping-stop-binge-drinking‘] doesn’t say. Perhaps people are just naturally belligerent. Maybe talking about binge drinking is a prompt to do so. Regardless, it goes to show that what you would assume is a normal, straightforward intervention just doesn’t work. As it turns out, changing human behaviour is difficult. Really difficult.

Another, more famous example is the Scared Straight initiative in the US. They took ‘bad’ kids, took them to prisons, and showed them how terrible it was. The idea was to make them too afraid to commit crimes.

The effect was the opposite – kids that went on the program committed more crimes than equivalent kids that didn’t. [act_tooltip title='(2)’ content=’ https://psychcentral.com/blog/scared-straight-not-really/‘]

In fact, one meta-study found that 90% of studied educational interventions either had a weak effect or none at all. [act_tooltip title='(3)’ content=’ ttps://80000hours.org/articles/effective-social-program/ ‘] As it turns out, we are very bad at predicting what works.

This is why evidence is so important. The absolute gold standard for charity evidence is the randomised controlled trial, which attempts to test the intervention by holding all other factors equal.

If a charity is running a program that has been scientifically proven to be effective, you are much more likely to create impact by donating to them than you are to a charity whose interventions are untested.

Evidence isn’t everything

Of course, the same reason that many interventions don’t work is also a reason to be cautious about how to interpret these studies. Humans are complex. Randomised controlled trials work off the assumption that the two groups are the same except for the intervention. Not only is that a big assumption, in order to get groups that are vaguely the same you need to exclude complex cases. There are also good arguments that an over-emphasis on evidence privileges certain western forms of thinking and makes it harder for Indigenous charities or methods to be funded.

There’s also the fact that running trials is exceptionally expensive. Running a full trial can cost millions of dollars in some cases. So there’s a lot of charity work that doesn’t have an evidence base because there isn’t the money to invest in it.

What’s more, reliance on evidence means that you’re ignoring new and innovative techniques. It’s entirely possible that the best ways of solving a problem are not the ones that we already have – instead we should be investing in new interventions or doing more research.

Finally, there are causes where requiring evidence doesn’t make a lot of sense, like the arts – imagine an evidence-based ballet.

So if proven programs aren’t always a reliable way of telling whether a charity is any good, what should we use instead?

Measurement and evaluation

As we outlined above, our instincts about what works and what doesn’t are often wrong. This makes it essential that charities measure and evaluate their own programs to make sure that they are actually accomplishing anything. Put simply, if a charity doesn’t measure what it does, it doesn’t know if it works.

Unlike with corporates, there’s no obvious measure of how good a charity is or how effective it’s being. If you’re a business, you can tell whether you’re making something that people want by how many people want to buy it or how much money you’re making. Measuring the effect of a homelessness program, for example, is far more difficult – you need to invest in figuring out what the short and long term outcomes are.

Unfortunately, measurement and evaluation isn’t particularly exciting. Many charities skimp on it because they figure the money is better spent on actually helping people, because they ‘already know’ the program works. Donors, too, are often sceptical – measurement falls into the dreaded bucket of overhead that people get wrongly angry about (more on that in the next article).

Yet a charity with the best of intentions can accomplish nothing if it doesn’t measure what it does. More than that, even if they do have a good program, it can never improve if they don’t identify which aspects work best.

So what you’re looking for are charities that have a solid measurement and evaluation plan in place – they can prove they are measuring the short and long term outcomes of the work they do. This can be quite difficult to find out, so you will need to read through websites and annual reports. But it’s a very important predictor of whether your donation will truly have a long-term impact.

Core predictors

Beyond measurement and evaluation, there are a few key indicators of good charity governance that will increase the likelihood that your donation will be well managed.

Transparency

A charity that is transparent is one that gives you all the information you need to make a decision. It shows they have confidence in the work they do and their approach.

Look for:

• Publicly available annual and financial reports
• Publicly listed board members
• Admitting of mistakes
• Privacy policy

Track record

While past performance does not always predict future success, a charity that has been historically poorly managed has more of a burden of proof than one that has been well managed. Of course, charities that are transparent enough to reveal their past failures (rather than having them dragged out by the press) are to be lauded as well.

Look for:

• Previous successes (and failures)
• History of good measurement and evaluation
• History of good financial management

Governance

A well-governed charity has checks and balances to make sure it continues to use money wisely and keeps the end beneficiary always in mind.

Look for:

• Board independence – is the board comprised mostly of staff? Are there representatives of the people the organisation is trying to help on the board?
• Board skills & diversity
• ACNC reporting – are they up-to-date?
• Audited financial statements (once the charity is beyond a certain size)

Skills and expertise

Charities that have a strong skill base and a good self-reflective culture are more likely to make less mistakes and learn from the mistakes they make. The involvement of end beneficiaries is especially important, as without it charities may solve for the wrong problem or not deal with all the relevant issues.

Look for:

• Responding to success and failure
• Self-assessment and self-skepticism
• Industry experience or lived experience

Strategy

Charities should have a strategy and follow it. This will not only ensure sustainability but also it will also give you a clear idea of where they are hoping to go in future.

Look for:

• Well-developed strategic plan
• Following of previous strategic plans
• Sustainable fundraising strategy

Values

Finally, a strong set of values can help ensure that a charity is aligned with all its staff and mission.

Look for:

• Well-defined values that match with the aim of the organisation

Finding good charities

You will probably have noticed that none of the metrics above are simple, or easy to judge. It takes significant time and effort to assess even a single charity. Surely there is a simple way to find the best charity? Sadly, there isn’t. Changing the world is a difficult, messy exercise, and finding charities where you will definitely be impactful is hard.

Unfortunately, this difficulty means that a lot of people are searching for an easy answer. This has led to some rather terrible metrics being used to decide which charity to donate to. That’s a topic for the next article. And how do you actually implement these recommendations in a way that makes sense? Well, that’s a topic for our final article on how to give, which will tie it all together.

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Welcome to our five-part series on how to decide where to donate effectively. We’re going to go on an in-depth journey through the psychology of donations, the best ways to tell whether a charity is good at what they do, and how to actually give most effectively.

1. What drives donations
2. Choosing a cause to support
3. Good ways to choose a charity
4. Bad ways to assess charities
5. The best ways to give

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To understand how to choose a cause, we need to grasp why we choose the causes and charities we do.

There are two schools of thought on this – passion and impact.

If you choose a cause based on passion, you donate to the causes that speak to you most personally. The disease your loved one died from, the local community you live in, the people and animals who have affected your life.

If you choose based on logic and pragmatism, you donate to causes where you can make the most impact, where we can improve the world the most. This is difficult, as to do this we need to somehow rank causes. But what’s more important – humans, animals, or the environment? Is it better to reduce suffering now, or save lives later? Do we save lives close to us, or further away? Fortunately, we’re not the first to grapple with these problems, and organisations like 80,000 hours have created frameworks to help us make these decisions (though they are still contentious, as they speak to very fundamental issues of moral philosophy).

You would assume, therefore, that it is the logical ones that make the biggest impact on the world. However, this isn’t necessarily the case. Donating to causes that you’re passionate about has a multiplicative effect – you are more likely to give, and give regularly, to causes you are passionate about. Not only that, you are more likely to tell others, to think deeply about the best ways to influence that cause, and to fundraise from your friends.

It follows, then, that there is a balance to be struck. The cause that you choose should be something that you’re passionate about, but also a cause where you have a real chance to create genuine impact on people’s lives. This makes where to donate a deeply personal decision.

Understanding your core beliefs

What you value and what you believe have a key role to play in deciding where to donate. To my mind, there are three main factors:

• Whether you think people, animals, or the environment are most valuable. There are some people who value human lives over all others. Others argue that animals are innocents unable to speak up about the horrific things we do to them, so perhaps they deserve protection more. Still others would argue that without an environment to live in both humans and animals would be in a very bad way.
• Valuing the present vs the future. Would you prefer to save lives now, or lives later? That’s essentially the choice you’ve making when you decide between present-focused charities (such as drought aid) and future-focused charities (such as medical research).
• Nearby vs far away. Do you value nearby things more than those living far away? Do you value the lives of people in Australia more than those in Iraq? If you’re like most humans, you probably do, but may not want to admit it.

These core beliefs help to shape which cause you might want to support, when combined with your passions. But in most cases they won’t be enough to narrow down exactly where you should donate.

Narrowing down your cause

How do you actually take your shortlist of causes and make a decision? Thankfully, organisations like 80,000 hours have been thinking about this, and have come up with three main metrics.

Scale

What’s the magnitude of this problem? How much does it affect people’s lives today? How much effect will solving it have in the long-run?

Solvability

How easy would it be to make progress on this problem? Do interventions already exist to solve this problem effectively, and how strong is the evidence behind them?

Neglect

How many people and resources are already dedicated to tackling this problem? Are they well allocated? Why aren’t markets or governments already making progress on this problem?

You may need to do some research to get a good answer to some of these questions. And that’s OK. It’s worth doing, especially if you’re going to ‘set and forget’ your donations for a while. This is also where personal passion is helpful, as if you are already knowledgeable on a subject it will mean you have a better idea about how solvable the problem really is and where you can make a difference.

So, you have a cause. But how do you decide which charity to actually donate to? In our next article, we’ll talk about good ways to decide which charities are most likely to impact on your cause.

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Welcome to ChangePath’s five-part series on how to decide where to donate effectively. We’re going to go on an in-depth journey through the psychology of donations, the best ways to tell whether a charity is good at what they do, and how to actually give most effectively. The articles will cover:

1. What drives donations
2. Choosing a cause to support
3. Good ways to choose a charity
4. Bad ways to assess charities
5. The best ways to give

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ChangePath exists to help people make decisions about where to donate. But where to donate is a surprisingly complex question. To truly understand it, we need to dig deep into psychology, the nature of suffering, and the intricacies of the world we live in.

On the face of it, deciding where to donate seems relatively straightforward:

1. Choose a cause,
2. Pick the best charity within the cause,
3. Give them money.

Of course, nothing is ever quite that simple. Do most of us sit down and think deeply about the charities we donate to? Does the average person do hours of meticulous research before deciding on exactly how to allocate their charity budget for the year? Of course not. That’s not really how people work. So how do we actually decide where to donate?

Why we donate to anything

From a completely dispassionate point of view, the fact that we donate at all is somewhat odd. Why give money with no expectation of return? Economists and psychologists, who spend their lives attempting to understand why humans behave in completely baffling ways, have a few theories. When you break it down, there are two different questions – why do we give at all, and why do we give to the specific causes we do?

Why we give at all

There’s a lot of research exploring why we behave altruistically. The simplest explanation, and one that holds a fair amount of weight, is that giving simply feels good. Professors Elizabeth Dunn & Michael Norton found not only did people who gave away money feel happy about it, they felt happier about spending $5 on someone else than spending up to $20 on themselves [act_tooltip title=’1′ content=’ https://www.forbes.com/sites/camilomaldonado/2018/07/10/you-should-budget-for-charitable-giving-even-if-not-rich/#6e3deab17439 ‘]. There are a number of other studies that have shown that giving activates the reward centres in the brain.

But it’s not just about feeling good ourselves. We are social creatures. So even when we think our motivations are pure, there’s often a social aspect to our behaviour. We will donate more when we are asked to give by someone we know [act_tooltip title=’2′ content=’https://www.theguardian.com/voluntary-sector-network/2015/mar/23/the-science-behind-why-people-give-money-to-charity‘]. If we see someone give a large donation directly before us, we are more likely to give a larger donation ourselves. This even works if you don’t know the person – having a famous person recommend a charity can dramatically increase donations.

Of course, not everyone has the same motivations for giving. Some are motivated by social recognition – research by economists Amihai Glazer and Kai Konrad shows that donors are most likely to give the minimum amount to get the maximum amount of recognition (e.g. if you need to give more than $1,000 to be a ‘Gold’ sponsor, most people in that category will give exactly $1,000) [act_tooltip title=’3′ content=’ https://www.stlouisfed.org/publications/regional-economist/october-2005/the-economics-of-charitable-giving-what-gives‘]. They say this suggests that people donate partly to signal their wealth.

Yet many people donate anonymously or feel uncomfortable when their donation is announced, so that can’t be a motivating factor for everyone. Indeed, research has shown that wealthy people give for different reasons to everyone else, based on their personal beliefs. Wealthy people were more likely to donate when the ad emphasised what an individual could do, rather than a collective call to action [act_tooltip title=’4′ content=’https://www.scientificamerican.com/article/wealthy-people-give-to-charity-for-different-reasons-than-the-rest-of-us/ ‘].

You’ll notice a common thread – none of these reasons for donating are particularly rational. Donations are, by and large, emotional decisions.

Why we give to the specific causes we do

Because donations are driven by emotions, the way many people choose which cause to donate to aren’t particularly rational either.

For more than 85% of charitable donations, people donate simply because someone asked them to. Which makes sense given what we know about the social motivations of giving – it seems like we are far more likely to be altruistic when someone else can see it or we have a friendly face to acknowledge it.

But it’s not just that many people aren’t intentional about their giving. No, it’s far weirder than that. Because we give based on emotions, this has a huge number of odd flow-on effects, including:

1. Charities that show a single, identifiable beneficiary (often a sad child of some type) get more donations than those that use statistics about the problem. People know, intellectually, that saving many people is better than saving one person. But donations are emotionally driven, so the less people you have on your poster, the more likely people are to donate. Indeed, researchers found that adding one more child to the poster reduced the amount of money given [act_tooltip title=’5′ content=’https://www.thebalancesmb.com/why-donors-dont-give-2502028‘].
2. The more futile a problem seems, the less people will give, even if you’re helping the same number of people. When people are told they can save 1,000 people, whether they donate is dependent on what proportion of the overall group they can save. The higher the percentage, the more likely they are to donate. For instance, people were more willing to donate if they could save 1,000 out of 5,000 people than 1,000 out of 10,000, even though you’re saving the same number of people for the same amount [act_tooltip title=’6′ content=’https://www.thebalancesmb.com/why-donors-dont-give-2502028‘].
3. Thinking about money decreases altruism. When researchers prompted people to think about money (by, say, having inexplicable monopoly money on the table) they gave less money than those that didn’t [act_tooltip title=’7′ content=’https://www.thebalancesmb.com/why-donors-dont-give-2502028‘].

But here’s the real kicker, especially for those of us who are trying to drive more effective donations.

Advertising which emphasises how effective a charity is does not increase giving. Indeed, evidence suggests that the effect of this information can actually be the opposite [act_tooltip title=’8′ content=’https://www.theguardian.com/voluntary-sector-network/2015/mar/23/the-science-behind-why-people-give-money-to-charity‘].

So charities that base their campaigns on how much impact they have will actually get LESS donations than those that don’t. Indeed, there is some evidence that charity impact scores are used by donors as an excuse not to give, rather than a reason to justify giving [act_tooltip title=’9′ content=’https://www.hbs.edu/faculty/Publication%20Files/charity_metrics_v9_d4870581-e84a-4f26-abc7-abf7581fd233.pdf ‘].

And yet, this flies in the face of what donors actually say they want. Donors are constantly asking for a better understanding of the impact they have. Research shows that two-thirds of donors say understanding their impact would influence them to give more [act_tooltip title=’10’ content=’https://www.fidelitycharitable.org/about-us/news/study-finds-donors-want-to-give-more-to-charity.shtml‘]. But it doesn’t.

What’s the conclusion to all this? It’s that the reasons that people donate, and the drivers to get them to donate, are emotional and complex.

Let’s bring it back to the original question – how should you, personally, decide where to donate? If you are to donate wisely, you should be aware of your own mental biases and try to overcome them. Are you looking at charity ratings as a way to talk yourself out of donating? Then don’t. If you want to put a lot of thought into where to donate, then you should.  

The core belief that underpins donations

Beneath all of the superficial reasons for donating, there is a single truth. One thing that we must believe in order for us to donate at all.

We donate because we believe that we can change the world with our actions.

We donate to causes we believe can bring the world closer to what we believe it could be.

Donations are an intensely personal choice about what you want to accomplish in the world. How you think the world is broken, and how you think it should be fixed.

In our next article, we’ll talk about exactly how to use that motivation, and the experiences that you’ve had, to choose a cause to donate to.

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Most of us haven’t worked in charities, which makes their inner workings seem somewhat mysterious. So it’s natural to ask where donations actually go.
The implied question is ‘does the money I donate actually go towards the cause’? The problem is that this question is neither easy nor straightforward to answer, and before we answer it we need to dive into what a charity actually is.

 

What charities aren’t

It’s easy to picture charities as a kind of money funnel – collecting money from the general public and directing it to where it’s needed most, be that cancer researchers or African orphans. You put cash in, and good results pop out the other side. The charity then takes a cut of the money in the process for providing this service. The seductive simplicity of this model means that, when you start thinking about finding the “best charity”, it seems that the charity that takes the smallest cut of your money must be the best one. Surely that means that the most of your hard-earned dollar is going to the people who really need it, right?
Well, no, not really. Let’s take a step back and think about what charities actually do and how.

 

What charities are

Charities are, fundamentally, very similar to businesses. They employ people to do tasks, and spend money to achieve their goals. The only real difference is that charities, instead of aiming for a profit, aim to change the world for the better.

In every other aspect they’re the same – they need accountants, and receptionists, and IT staff, and everything else. None of these things are frivolous or unnecessary – running a large charity without an accountant is not being frugal, it’s a recipe for disaster. In a very real sense, the accountant is just as essential to the charity achieving its aims as the scientist in the lab doing research.

The exact distribution of how their money is spent depends, obviously, on the charity. Some charities will give out grants to other organisations to achieve specific goals . Others will spend money on advocacy, or in-house researchers, or field work, or providing services. This depends on what the charity wants to achieve, of course, but also how it has decided to reach those aims. Two charities with the same goals might have very different means to reach them .

Let’s take an example – heart disease. It’s a serious problem, the number one killer of people in developed countries. A number of charities have been set up to tackle it. But how? Charity A aims to reduce deaths from heart disease, and gives grants for medical research to create better treatments. Charity B has the same aim, but believes that prevention is also important. So perhaps they set up an education program, teaching children about the risk factors for heart problems and encouraging them to exercise. Charity C also wants to reduce deaths from heart disease through prevention, and evidence shows that adults aren’t exercising enough and that better bike paths help. So they work to convince the government to install them.

Which of these charities is ‘right’? They will all probably reduce deaths from heart disease in different ways. Medical research takes a long time, so Charity A might not see results for a decade or more, but could help people around the world rather than locally. Educating children has even longer term results – those children wouldn’t get heart disease for another 20 or 30 years. So which one is best? That’s a question for the academics and strategists.

So the answer to the question ‘Where charity money goes’ is a simple and rather unsatisfying one. It goes where the leaders of that charity think will have the most impact. The good thing is that you can find out what they believe by reading their annual report. It should tell you in some detail what the charity is spending money on and, more holistically, what it considers important.

 

But what about charity waste?

Of course, charities don’t always make the right decision with where to spend money. Most charities are very good at spending money effectively, and it’s a very rare bad egg that spends it deliberately poorly. A charity might spend money on an unsuccessful advertising campaign, or on an ill-fated fundraiser, or on an inefficient intervention. Sometimes this is done in bad faith, but more often it is simply because charity workers are not omniscient and make poor decisions sometimes. Unfortunately, aside from in exceptional circumstances, it’s almost impossible to tell how many good or bad decisions are made in a charity. All you have is the outcomes, and sometimes (like our heart disease example earlier) you might not even have those for a decade or more after the fact. Telling which of our heart disease charities is ‘most efficient’ is about as difficult as telling which one is ‘best’.

Of course, there are a number of things incorrectly regarded as ‘waste’, such as paying CEOs. This is a common refrain against charities, but remember that large charities are very similar to businesses. You want that charity to be run well, and to do that you need a CEO who isn’t terrible. And finding CEOs that are both capable of doing a good job and will work for low pay is rather difficult. This is a small part of a larger discussion about how and how much charity workers should be paid, and there are no simple answers as to how much is the right amount. But it seems like the right amount is definitely more than nothing.

 

Deciding where your money should go

Behind the question is an anxiety – a desire to have your donations make a difference. You want to look inside the black box of charity to see what your donation actually does. Of course, the simplest answer to this is to read what the charity itself says. If there’s a charity you’re interested in, have a read of their annual and financial report to get a sense of where they’re putting their money and what they consider priorities. If that’s not enough, contact them and ask what they’re doing. It is very unlikely that they’re putting it in some kind of Scrooge McDuck-style vault for their CEO to swim in.

This blog post won’t tell you who you should donate your money to. Donations are a personal choice, and made in line with personal beliefs as much as with raw data. If, after reading through a charity’s annual reports, you don’t like the way they distribute their funds, then don’t donate to them. If you do, then do.
There is obviously more to it than that – some charity approaches are genuinely more cost-effective than others, and depending on the field you’re interested in there may be a substantial amount of literature on exactly what works best to solve that particular problem. The more you read, the better informed your choices will be, and the more likely that your donation will have a substantial impact.