What Charity Should You Give To?

What Charity Should You Give To?

Joseph Stinn

economy, Americas

Rewarding charities that scrimp is less strategic than it sounds. 

The end of the year is a popular time to give to charity.

Historically, Americans have made 30% of their annual donations in December. Many of them get a head start on the first Tuesday after Thanksgiving during the global online fundraising campaign known as Giving Tuesday.

But no matter what time of year it is, donors want help deciding which charity to support.

Because I conduct research about nonprofit evaluation methods, I’ve been studying the approach of ranking charities depending on how much of their budgets they spend on everything from paperclips to insurance.

A dangerous obsession

Known as the overhead ratio, this metric encompasses expenditures that might appear to be unrelated to work that advances a charity’s mission. Such money, the argument for low overhead ratios goes, might be wasted.

Nonprofits typically have overhead ratios of around 20%, meaning that they spend about 1 out of every 5 dollars on fundraising expenses, accounting, publicity and everything else needed to operate. Some salary and benefits expenditures count as well, depending on what the employee does.

Pressure from donors, charity watchdogs, the media and even lawmakers to keep overhead costs low can conspire to deprive nonprofits of the money they need to run smoothly. In some cases, pressure to keep overhead low can depress pay and bring about skimpy staffing and benefits, making it harder for charities to hire strong job candidates and keep their best employees on board.

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