The How, Where and Who of Giving

The gist: We all feel that philanthropic spirit this time of year, but as they say, the devil is in the details. We’ll help you navigate the nonprofit world.

It’s the holiday season, and a perfect time to step back and think of those less fortunate. Do you have a loving family, a roof over your head, food on your table? Chances are someone else doesn’t. And you can help make the world a little bit better for your being in it.

Question 1: How much should you give?

Deciding how much to give to charity depends a lot on your financial circumstances. A financially stable person without a family to support may be able to give a greater percentage of his income than someone who’s paying off student loans, medical bills, or simply saving for something important.

Of course, you should take care of your own needs before giving: Charitable donations should come out of your discretionary spending, not eat away at your budget for necessary items. The average American donates 3-5% of her income to charity, but if you can spare it, we think 5-10% is a pretty good benchmark to aim for. We think it’s worthwhile to make donations a line in your budget, so that you’re more likely to stick to your donation plan.

Donation statistics from JustGive.org:

  • The average American donated 3.1% of her income to charity.
  • Households donated $1,620 on average.
  • Americans contributed 8.1 billion hours of service a year, at an average of 34 hours per person.

Households earning under $10,000 – well below the poverty line – donated, on average, an amazing 5.2%. We can learn from the example of those who have little and give much.

Question 2: Where should you give?

Give to something you feel a visceral connection to. People are more likely to donate to causes they feel passionate about (earthshaking, I know), and you aren’t drawn to a cause without reason. If you’re looking to make the biggest bang for your buck, UPenn’s Center for High Impact Philanthropy publishes their Holiday Giving Guide, spotlighting charities and causes that are efficient and impactful. They include opportunities in the US as well as abroad.

Charities such as food pantries and shelters, as well as disaster relief organizations, receive a lot of media attention and donations this time of year. These are, of course, worthwhile causes, but remember to consider less glamorous charities as well.

Here’s our guide for choosing what area(s) to donate to:

  1. Do I want to donate locally, nationally or internationally?
  2. Do I want the charity to provide intensive services for fewer people (such as mentoring services) or smaller services for more people (such as clinics)?
  3. If I could fix one problem in the world, what would it be? Do any charities address this need?

Question 3: To whom should you give?

Now that you’ve found an area to give to, it’s time to choose a charity. This is where things get dicey, because it’s hard to tell what information is salient in determining a charity’s effectiveness. For example, if a charity spends half of its revenue soliciting donations one year, but receives twice as many donations the next year as a result, looking at its overhead costs won’t give you a good picture of its effectiveness. On the other hand, as charities get larger and spend more on administrative costs, their impact per dollar often falls. Here are some guidelines in choosing what charity to give to:

  1. Is the charity registered with the IRS? You won’t get a tax break otherwise.
  2. Does the charity have clearly defined objectives, and do they track their progress?
  3. Does the charity have a roadmap for how they will accomplish their objectives?
  4. How much of every donated dollar actually provides the services advertised? is a great resource for this.
  5. Is an outside organization offering a dollar-for-dollar donation match?

If your cause will provide quantifiable services:

  1. What metrics would best evaluate this charity? It might be clients served per dollar donated, children vaccinated, or standardized testing score improvement.
  2. Are such metrics available?

Remember to look past the anecdotes. Every charity has a success story that tugs at your heartstrings, but smart giving begins and ends with data.

If you want to donate to an intensive, personal development-related cause:

  1. Does the charity have a clearly defined scope, or does its mission statement have little to do with its actual operations?
  2. Does the charity have a clear plan for its donations? For example, will the money be used for a general fund or will it buy new computers for an underserved school?
  3. Does the charity keep clear, detailed records? If asked, could its leadership give you a cohesive analysis of its impact?

Resources:

A word of caution: we at NerdWallet loves us some data. However, many nonprofits put in years of work before seeing dividends. They must establish trust in a community, face significant operational costs as they first start out, or simply don’t see results until a critical mass is reached. Malaria nets are a great example: once a certain percentage of the population is protected, infection rates plummet, but until then, it’s hard to see a result. When in doubt, ask an economist.