This past year my wife and I made charitable gifts to more than a dozen different charities. Since both of us have worked in the nonprofit sector for a combined six decades we have first-hand knowledge of most of the charities to which we contribute.
We know they are all reputable nonprofits that do great work. They do not have extraordinary overhead costs, i.e., administrative/fundraising costs. In all cases more than 80 percent of the funds they raise go toward the operation of their programs. The charities we give to rely on receiving lots of small donations for their survival.
Most of the charities we support have missions that revolve around ameliorating the effects and consequences of poverty rather than eradicating the underlying root causes of poverty. For example, when it comes to hunger, we support a soup kitchen, a food pantry, and food banks — the primary missions of these agencies are not to “teach folks to fish” but rather to mitigate the pain, suffering, and indignity of hunger, which has a broad range of devastating physical, emotional, and intellectual development consequences.
More and more lately I have been seeing stories that suggest that donors should reduce the number of charities that they support to a handful, but donate larger amounts to these charities. These articles urge donors not to become guilt-tripped into giving to every worthwhile cause. Those who take this position make four basic points.
First, they argue that giving to fewer charities will produce lower fundraising costs so more of one’s donation will end up going to programs. From a mathematical perspective this is true. If one donated $35 to a charity and they deposited it in their bank account there is generally a small per transaction fee of around $0.25. This fee is the same if you donate $350. Thus, if one makes ten donations of $35 each, the charities would be charged a $0.25 per transaction fee or a total of $2.50. This would reduce the charitable gift to the charity to $347.50, not the $350 contributed. In the case of a single donation of $350, $349.75 would go directly to the charity.
Second, by limiting the number of places you give, you reduce the cumulative costs of processing multiple gifts and improve efficiency, i.e., less labor in handling donations, lower postage and printing costs, fewer thank-you letters and lower data-base management costs.
Third, concentrating your giving will produce more impact — one big donation of $5,000 will do more good than a hundred donations of $50. There is no question that big gifts, especially those without restrictions, are highly coveted by nonprofits. They can provide seed funding for new initiatives or reinforce and strengthen a particular operation of a charity.
Last but not least, by developing a small “portfolio” of charities you support, you will have more sway within the organizations that you give to.
In spite of these four reasons, I’d like to make the case as to why, for most donors, making lots of small donations to charities they know something about is an excellent giving strategy.
First, while it sounds plausible that a single larger donation will have more impact than multiple small donations, it is not necessarily true. Malaria is one of the leading killers of children in Africa. The Against Malaria Foundation, a highly regarded nonprofit provides insecticide-treated nets that prevent deaths. The cost is about $5 per net. There are many highly rated international, national and local charities, supported largely by small donors that provide similar bang for one’s charitable buck. Lots of good is being accomplished by charities largely supported by many small donations.
Second, most small nonprofits would not exist were it not for the smaller donations they receive annually. They are the sustaining lifeblood of the majority of America’s charities, especially those who do not rely heavily on government funding. Additionally, it is well-recognized that consistency of giving over time, not the magnitude of a gift, is the best indicator of bequest giving. It is not at all unusual to hear about a person, who made small donations to a charity for many years, leave the organization a very significant bequest in their will.
Third, many foundations will only support charities that have a broad individual donor support. This is the case because some foundations recognize that broad individual support by the community at large is an indicator of high-quality programs.
Fourth, charities know that the bedrock of challenge grant programs is small individual donors. When high-wealth individuals, corporations or foundations launch challenge grant campaigns a significant portion of the funds raised typically comes from small individual donors.
Fifth, the holy grail of development is a diversified donor base that includes foundations, corporations, religious institutions, civic and fraternal groups, event fundraising and most important, a broad range of individual donors. A diversified donor base, replete with many individual donors, like a diversified investment portfolio, is the best defense a charity can have against unanticipated loss of a single or multiple large donors.
Whether you decide to financially support many charities with smaller gifts or put all of your eggs in one or two baskets, the absolute best way to decide which charities to support is to observe a charity’s work and see how well it’s run and whether its programs are well-attended.
If you can’t do that, there are an increasing number of on-line sites that evaluate charities on the basis of their financial health, accountability and transparency. The most prominent of these is Charity Navigator, founded in 2001, which provides unbiased, number-based evaluations of 8,000 of America charities. GiveWell is the most well-known of a new generation of entities that more vigorously evaluates charities to uncover those that are producing dramatic results very low costs. As it takes GiveWell thousands of hours to conduct its research, in is only able to evaluate a small number of charities each year.
We are extremely fortunate in America to have thousands upon thousands of high-performance charities helping to improve the lives of our citizens and supplementing in crucial ways the provision of the government social service safety net. With governments at all levels facing increasing deficits it is likely that our nation’s nonprofits will, no doubt, see fewer and fewer government dollars in the years to come. As a result, the ongoing solvency of the non-profit sector and the viability of the key elements of the safety net will increasingly depend on the generosity of the American people.
Whether you choose to give to many or a few charities, your support will become more and more crucial in the coming years as government, at all levels, retrench from a robust domestic agenda.
Irwin Stoolmacher is president of the Stoolmacher Consulting Group, which advises charities in fundraising and strategic planning.