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:
What activity do I want to support, and
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.
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.
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.
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.
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
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.
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
intention is the right one, but the problem is that it’s wrong. Entirely,
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
Providing services (e.g. running a
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.
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.
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
For you to
believe that the overhead ratio is a good way to decide which charity is doing
well, you need to assume:
There is no value in having an effective
The way of affecting a cause that
needs the least staff is always the best
Measurement and evaluation are a
waste of money
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(1). They’re almost completely unrelated. Indeed, there’s some evidence to suggest that good charities spend more on administration (2).
important, because we don’t want to see what happened in the USA repeat itself
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.”
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/
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?
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
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.
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.
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
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.
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.
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.
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
based on ratios,
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.
else, let’s get practical.
Narrowing down to a
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
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
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.
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?
there is no easy answer. Finding a good charity is more than star ratings.
There are a lot of very difficult questions to investigate.
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
Checking the evidence base
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 (1) 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.
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. (2)
In fact, one meta-study found that 90% of studied educational interventions either had a weak effect or none at all. (3) 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.
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
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.
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
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.
there are causes where requiring evidence doesn’t make a lot of sense, like the
arts – imagine an evidence-based ballet.
proven programs aren’t always a reliable way of telling whether a charity is
any good, what should we use instead?
Measurement and evaluation
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.
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.
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).
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.
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
measurement and evaluation, there are a few key indicators of good charity
governance that will increase the likelihood that your donation will be well
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
available annual and financial reports
listed board members
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.
successes (and failures)
of good measurement and evaluation
of good financial management
well-governed charity has checks and balances to make sure it continues to use
money wisely and keeps the end beneficiary always in mind.
independence – is the board comprised mostly of staff? Are there representatives
of the people the organisation is trying to help on the board?
skills & diversity
reporting – are they up-to-date?
financial statements (once the charity is beyond a certain size)
Skills and expertise
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.
to success and failure
experience or lived experience
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
of previous strategic plans
strong set of values can help ensure that a charity is aligned with all its
staff and mission.
values that match with the aim of the organisation
Finding good charities
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.
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.
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.
understand how to choose a cause, we need to grasp why we choose the causes and
charities we do.
two schools of thought on this – passion and impact.
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.
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).
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.
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
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?
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.
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:
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
On the face
of it, deciding where to donate seems relatively straightforward:
Choose a cause,
Pick the best charity within the
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 themselves1. 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 2. 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) 3. 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 4.
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
are driven by emotions, the way many people choose which cause to donate to aren’t
particularly rational either.
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.
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:
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 5.
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 6.
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 7.
the real kicker, especially for those of us who are trying to drive more
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 opposite8.
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 9.
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 10. But it doesn’t.
conclusion to all this? It’s that the reasons that people donate, and the
drivers to get them to donate, are emotional and complex.
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
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.
to causes we believe can bring the world closer to what we believe it could be.
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.
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.
At ChangePath, we rely heavily on financial statements to assess the financial health of a charity. Our methods are relatively simplistic, and they aim to give a very basic metric for understanding if a charity is being managed well or poorly. Given these limitations, we shouldn’t fall into the trap of thinking that financial statements give us the whole picture.
Let’s look at a case in point: World Vision Australia. Tim Costello, the CEO, has talked about how Australian giving is waning and that “this has been the worst time of my life in 12 years at World Vision” 1. Last year, World Vision laid off 89 staff out of around 500 full-time, blaming the falling Australian dollar and the fact that child sponsorship has dropped from 80 per cent of the organisation’s revenue to 43 per cent in just over a decade 2. According to Tim Costello, this is an exceptionally tough time at World Vision.
And yet, a superficial glance at the financial statements appears to tell a different story. Revenue has steadily increased over the last four years, from 343m (2012) to 370m (2013) to 380m (2014) to $424m (2015). Donations are similarly rising slowly, from 287m to 307m to 309m. The balance sheet is healthy, and they have been relatively good at keeping expenses in line with revenue. While they did lose $1m in 2013, World Vision Australia posted a $21m surplus in 2014. A brief look at the numbers appears to show a charity in great financial health.
When finances and words diverge
So what’s going on here? Is Tim Costello lying? This seems very unlikely – charity CEOs don’t lay off staff without very good reasons, especially when it represents almost a fifth of all full-time employees. People are expensive to hire and train, and layoffs are terrible for morale. Occam’s razor would suggest that World Vision Australia is telling the truth and is indeed going through tough times 3.
More likely, what this illustrates is a few key problems with using financial statements to understand charities. First and foremost, you’re only looking at a snapshot back in time, often quite far back. When Tim Costello was quoted as saying it was the ‘worst time’, the most recent financial statements available were from the end of September 2014, nearly two years earlier. This is because you can’t write the financial statements until the end of the financial year, and it generally takes a few months for the final statements to be written and approved. So there’s close to a year-and-a-half gap between what’s actually going on and the financial information we have. The Australian dollar didn’t start its latest fall until just after that report was published, in October 2014, and the effects wouldn’t have been felt until sometime in 2015 at the earliest.
Even now in March 2017, a full year since the original news article, we’re still not much wiser about what exactly was happening in early 2016. The latest annual report available (as of March 2017) only gives figures until September 2015. Even then, there were a few mentions of hard times – the Board Chair’s report refers to it as a ‘challenging year’, which speaks volumes when you consider the rarity of hearing negative news in the introduction.
Another important point is that three years and the headline figures aren’t always enough context to see long term trends. While donations have been rising slowly for the last three years, to understand the strategic direction of World Vision you need to go back five, maybe 10 years and look at the trends.
Finally, it illustrates how relying on the big picture numbers can lead you to miss important events and get a warped understanding of the health of an organisation. If you just looked at the headline revenue figure in the 2015 financial report, you’d think World Vision was a picture of health, with steady revenue growth from the previous year. Yet a bit of digging reveals worrying trends. Child sponsorship income, by far the largest single income source and an important source of recurring funding, declined from $194 million to $186 million. This was masked by a significant uptick in donations of goods and in grants. Yet as the report notes on page 28, “the future for grant income remains uncertain”, and given that grant income generally funds specific projects rather than the running of the charity itself, it can create significant issues.
Of course, as with any media story, the way it is pitched is important. Look at the way they have phrased it – ‘child sponsorship had dropped from 80 per cent of the organisation’s revenue to 43 per cent’. This says nothing about the absolute numbers, only the relative numbers. Are donations falling and other types of revenue are taking up the slack? Or are donations rising but other forms of fundraising are rising faster? Without analysing the financials for ten years, it’s difficult to say.
It will be very interesting to see what the 2016 financial statements show when they’re released. I’ll update this article once they’re available.
We all see the charity fundraisers in the streets, trying to attract your attention as you desperately stare at your phone in a vain attempt not to be noticed.
Opinion polls suggest high levels of public hostility towards street fundraisers, also known as “chuggers” (a portmanteau of “charity mugger”), with as many as 80 per cent of those interviewed being against them. Even I’ll confess to not liking them, and I’ve worked in charities for years.
Recent articles, like this one, have come out swinging against these fundraising tactics. Not only that, but these services are famously costly for the charities. This is a reputational risk for the charity as well as a monetary loss.
So if they annoy donors, are hugely expensive, and give the charity a bad name, why on earth do they keep being hired?
The chugger balancing act
For charities, street fundraisers represent a tradeoff. They know that face-to-face fundraising isn’t well liked, and it does put a bit of a dent in their reputation. But it’s very effective, especially at finding people willing to give a recurring donation.
It’s long-term sustainable revenue like that (people giving a few dollars a month) that allows charities to plan for the future slightly better. Most charity revenue is one-time – an event, a fundraiser, a day, or a bequest. This means that one rained out event, or one cancelled fundraiser, has the potential to seriously dent the numbers. Recurring donors, by contrast, give charities a fairly stable stream of money which they can then allocate to research, advocacy, or whatever they choose.
People with recurrent donations also give more – one study found average recurring donor will give 42% more in one year than those who give one-time gifts. Cynics would argue that donors forget about the recurrent funding and thus spend more on the charity than they would if you asked them for a lump sum, but it’s also intimately tied in with the psychology of how humans value money now vs money in the future.
Donors with recurrent funding are rarely donors for life, but they last much longer than ‘one-time-only’ donors. The average length of time they maintain their donation is 4 years. “Over 70% of people that we recruit into organizations never come back and make another gift,” says Dr. Adrian Sargeant, Professor of Fundraising at the Lilly Family School of Philanthropy at Indiana University. Whereas 80% of monthly giving donors are still there a year later.
And donations aren’t the only factor. Street fundraisers also help to raise awareness of a charity, though this is somewhat counterbalanced by the slightly negative associations with chuggers.
Effectively, the simple fact is that charities wouldn’t employ these fundraisers if they didn’t believe the tradeoff was worth it. Indeed, I know a number of charities held off on doing face-to-face because they were worried about the reputation damage. But then they, like a lot of other charities, realised that they were simply ceding donors to other charities who were willing to do it.
The numbers don’t lie
To look at just how influential face to face and recurrent donors are, you need to look deep in the bowels of charity financial reports. Most charities won’t pull out their face-to-face numbers but thanks to the Charitable Fundraising Act (1991), NSW charities have to provide some details on where their fundraising comes from. After a quick trawl through some annual reports I’ve found two that actually give broken down numbers: Cancer Council NSW and Amnesty International. They tell different but related stories.
Amnesty International is, thanks to its ‘sponsor a child’ program, one of the most heavily weighted towards recurring donations. Looking at the Amnesty International financial breakdown (Note 19, page 31), you can see just how heavily they rely on regular giving. Of their $25m in fundraising revenue, a full $21m is regular giving.
Looking at the Cancer Council figures (note 22, page 39), you can see that face to face revenue is not as significant ($15m in revenue out of $83m) but it’s still the second-largest source of funds after bequests. By comparison, Daffodil Day raises less than $3m.
Of course, we’re confusing two very different issues here – recurrent donations are not only raised from face-to-face fundraising. Most charity websites now offer a ‘regular donor’ option, and often irregular donors will be contacted to try and get them to upgrade to being more recurrent. Yet face-to-face remains a key part of the fundraising mix and the one of the most successful at getting regular donors.
I do feel for the poor fundraisers. I’ve worked with several face-to-face fundraising organisations during my time at charities, and they’re generally full of young, friendly people. It’s a thankless, soul-sucking job, and they’re actually doing a better job for charities than most people realise. Of course, you’d be far better to donate directly to a charity on a regular basis, thus cutting out the middleman, but in the absence of everyone doing that they will continue to walk the streets.
Shane Warne’s charity hit the news some months back. Following revelations around poor financial management and intense media scrutiny, the charity folded in January. What lessons does this hold for donors and charities?
The story seems straightforward, yet a closer look reveals some useful lessons for donors and charities alike, and they’re not the lessons you might expect. First, we should have a quick recap on what happened:
The Shane Warne Foundation raised money for other charities using high-profile, high-cost events such as poker tournaments and dinners.
It was poorly financially run, losing money four out of the last five financial years, and had a series of 3 CEOs in that time. It did not make public its annual or financial reports.
The foundation donated to charity 16 cents of every dollar raised between 2011-13, and 24 cents of every dollar it raised in 2014-15.
Warne’s brother Jason was paid an $80,000 annual salary in a year that the foundation donated $54,600 to charity.
Consumer Affairs Victoria (CAV) began making inquiries into the foundation’s operations in July 2015 before renewing its fundraising licence. Concerns had been raised about its expenses, level of donations to beneficiaries, and the amount of money it was holding in reserve, according to a CAV statement.
The foundation was voluntarily shut down in January 2016. An audit ordered by consumer watchdog concluded in March that the foundation complied “in all material aspects” with the law, though the CAV has, as yet, not issued a statement on the audit result.
Of course, that’s not all there is to tell, otherwise this article would be rather boring. For the full story, you can read the SMH article as a good starting point as well as the Age and the ABC. However, as I’ll touch on later, keep your sceptical hat on as you read. This reporting is telling a story, as all media does, so it can be hard to separate out the truly relevant from the gossip and inference 1.
So, a poorly run charity that was losing money was shut down after media scrutiny uncovered the state of its finances. A fairly unremarkable story, spiced up by the involvement of a well-known celebrity. What could we possibly learn from it, other than ‘don’t be like those guys’? A fair amount, as it turns out.
Transparency should be a non-negotiable when picking a charity
An obvious (and rather self-serving, for a transparency promotion organisation) point is that this story illustrates just how valuable transparency is in the charitable sector. The foundation didn’t release financial statements, a fact that was used against it in reporting. Had they released them, these problems would have come to light before they got so substantial, and potential donors would have had a far better understanding of where their money was going. We’ll never know how this would have affected the eventual outcome, but it’s hard to believe it wouldn’t have been better for both donors and the charity itself.
Big events are actually not great fundraisers
Glitzy, high-profile events are a staple of many large charity’s fundraising arsenals, but they have a guilty secret: compared to most ways of raising money they’re actually startlingly inefficient. The reason is obvious – luxurious events are not, by definition, cheap. Putting on a proper black-tie ball can be a staggeringly expensive proposition. Entertainment, venues, three-course meals, decorations, staffing, it adds up remarkably quickly 2. Not to mention high-risk – most costs need to be incurred ahead of time, with no certainty that the event will get enough donors to break even, much less make a good return for the charity.
Choice has pointed this out previously – “[Event costs] can mean less than half of your ticket price goes to the actual cause asking for money. In 2005, just eight per cent of proceeds from a fundraising dinner for the Children’s Cancer Institute of Australia for Medical Research made its way to actual cancer research, due to poor turnout.” For larger charities, this can still be a good investment – it allows them to gain a lot of promotion and get close to their more high-worth donors. But basing a foundation around doing nothing but big events makes budgeting a constant tightrope walk. With the benefit of hindsight, the Shane Warne Foundation’s fundraising model was a high risk, low reward proposition from the start.
The media are a double-edged sword
Charities and the media have an interesting relationship. When you donate to a charity you generally don’t get anything in return aside from a fuzzy feeling and perhaps a letter of thanks. This is obvious, but it means that the reputation of the charity is absolutely paramount – if you don’t have absolute trust in the charity, you’re not likely to donate to them. This is why services like ChangePath are in such demand. But it’s also a critical factor when dealing with the media, the main source of most people’s information about charity. For not-for-profits, unlike P.T. Barnum, not all publicity is good publicity. An article that’s critical of a charity can be immensely damaging to its ability to fundraise.
And yet, charities need the media. Not only because advertising is expensive and media coverage is a cheap way to get exposure, but also thanks to the legitimising aura of major media outlets. If it isn’t being featured in newspapers, on television and in other areas, a charity is cut off from a large potential donor base it couldn’t reach in other ways. Social media is changing this to an extent, but the power of the media remains strong.
The Shane Warne Foundation is a powerful example of how influential the media can be. Far more than the investigation by Consumer Affairs Victoria, it was media coverage of the problems of the charity that led to its eventual closure. This reporting has been not exceptionally kind – the media love a good story about a charity’s downfall, especially when a celebrity is involved. The combination of moral righteousness and schadenfreude is too good to ignore. Yet this leads to reporting that could be alleged to be biased (Shane Warne certainly felt so).
Mostly it is a subtle lack of context – say, reporting that KPMG found that cash couldn’t be accounted for, ignoring the vital context that this statement is true of almost all charities and is a standard boilerplate text found in many charity annual reports. Similarly, this reporting that a former personal assistant of Shane Warne’s won one of the charity auctions, while only in the 5th paragraph was it acknowledged that this didn’t break any laws and there was no allegation of wrongdoing. This kind of reporting is pervasive throughout the discussions of the foundation, and it makes it difficult for the general public to pull aside the curtain of moral outrage to the actual facts. It also serves to reinforce some unfortunate misperceptions about charity donations that I’ll talk about a bit later.
The power of celebrity
Celebrities have a minor superpower – they generate news simply by existing. Otherwise mundane events, such as going out on a date or being injured, get written up in breathless prose by reporters and are lapped up by the public.
This has led to many charities bringing on ‘celebrity ambassadors’ to help increase the media coverage of their work. Running a campaign against a major disease? Boring, nobody is going to write an article about it. Running a campaign against a major disease and someone famous is at the opening? Journalists will knock down your door. This is perhaps overly cynical, but it is difficult to argue with the ability of celebrities to capture media space. Celebrities also bring a host of other benefits, such as their connections to influential donors, name recognition, and pulling power for events.
There is another side to the relationship, however. As much as people want to see celebrities doing good, they want to see them doing evil more. That means that any potential wrongdoing will be amplified and broadcasted, which can have substantial repercussions for the associated charity. How many small charities are there out there that are doing the same (or worse?) than the Shane Warne Foundation, but the media never had any interest in reporting them?
The toxicity of charities spending money
The media coverage of this debacle reveals a lot about how the media perceives charity spending, which in turn shapes the way the general public thinks about it. While this is an extreme case, the general sense that charities shouldn’t spend money on administration (or indeed anything that isn’t ‘the mission’) pervades all the coverage of this incident. This is despite long-term and repeated calls to stop fixating on charity administration and costs.
The phrase ‘only 16c out of every dollar was donated to charity’ is used in most articles about the scandal, but is delivered completely devoid of context. Is that bad? How would we know? As we saw earlier, a similar fundraising event only raised 8 cents in the dollar. Administration ratios are a notoriously terrible way to assess whether a charity is doing a good job. While 16 cents is certainly not a great total, without a more nuanced understanding of the charity’s accounts it’s impossible to say whether this was due to waste, poor management, or simply the costs of hosting the events.
Similarly, much of the reporting focused on the fact that Shane Warne’s brother was paid $80,000 as CEO. While I don’t condone nepotism (it is possible, though highly unlikely, that he was the best man for the job), we need to get over our collective fear of paying charity CEOs a competitive salary. It’s something I’ll come back to in a future article, but the phrase ‘if you pay peanuts, you get monkeys’ applies 3. With the context that the average pay for a charity CEO in Australia is $100,000, $80K seems more reasonable. As always, context is important.
Giving and giving up
The fundamental problem with many of the issues raised with the Foundation is that we don’t have a counterfactual. There’s no crystal ball to tell us what would have happened if different decisions had been made. If the Shane Warne Foundation hadn’t existed, would more money have been donated to charity, or less? The charity gave (by its own estimates) nearly $4m directly to charity over 11 years. Even if we assume that’s a bit optimistic, it’s still a very substantial amount of money. A Canadian survey found that only 19% of donors decide in advance how much money they’re going to donate over the course of a year, meaning that the amount that most people give is dependent on circumstances. If donors hadn’t been at the Shane Warne Foundation fundraising events, it’s doubtful they would have ‘replaced’ that donation by giving money elsewhere. It seems likely 4 that the Shane Warne Foundation was a net force for good while it existed, even if an inefficient and poorly run one. Perhaps there was a way for it to survive the drubbing it received and reform into a better, more efficient organisation. Perhaps not. Regardless, in its very public sinking it has lessons we should all learn.
What do you think? Are there additional lessons to take from what happened to the Shane Warne Foundation?
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