In a span of six city blocks from my home in Washington, D.C., I pass more than a dozen charities: five churches, five social service organizations and four educational institutions. This may seem like an unusually large number, but it’s not.
There are more than 1.1 million charities in the United States, with annual revenues exceeding $1.5 trillion. As a country, we direct enormous resources to this sector and place substantial social responsibilities on it, yet the vast majority of charities can’t demonstrate any commensurate return on those investments.
What Charity Brochures and Videos Don’t Say
In the three years I spent researching my book, With Charity for All: Why Charities Are Failing and a Better Way to Give, I learned that it’s easy to find a nonprofit’s glossy fundraising brochures and carefully crafted inspirational videos. However, I discovered, they often mask the group’s underlying problems, ranging from inefficiency and waste to outright fraud.
I also had a much harder time turning up charities that could prove they were making important, measurable differences in people’s lives, though I did find a few.
What Donors Fail to Do
Here’s something else I learned: Although Americans are generous — giving charities about $2,700 a year per household, on average — few people put much thought or effort into their donations.
Most donors report spending zero time researching charities and instead give out of habit to familiar names or to the charities of friends and peers.
This attitude was captured by one man’s comment in a focus group conducted for a study by Hope Consulting: “I compare microwaves and CD players and cars because I don't want my item to suck. But with charities, unless they are a scam, your money is going to do some good.”
The Big Problems in the Charity World
Is his nonchalant approach to charitable giving warranted? Here are the reasons I believe it isn’t:
There is very little regulation of the charitable sector. The Internal Revenue Service approves more than 99.8 percent of all applications to form public charities. After receiving this approval, it is very rare (absent abandonment) that the group will lose its charitable status.
In addition, it has been estimated that there are fewer than 100 full-time charity regulators in this country.
(MORE: How to Recognize Charity Fraud)
As a result, organizations in the charitable sector range from exceptional to ineffective to fraudulent.
Donations can easily end up going to charities that don’t spend their money wisely. There are so many charities that have relatively little reliable information about them that it can sometimes be hard for donors to tell one nonprofit from another.
For instance, there are more than 59,000 groups with the word “veteran” in their name. Even experts could be forgiven for confusing the Disabled Veterans of America (which in at least one year spent more than 95 percent of its revenues on fundraising and overhead) with the similarly named but more efficient Disabled American Veterans Charitable Service Trust.
The most innovative and effective charities are sometimes unable to grow and expand their services because the public doesn’t know about them. In the nonprofit world, brand and familiarity are typically more powerful than new ideas.
If you look at a list of the largest companies over the last 40 years, you’ll see that the names on it have changed radically, due to competition and technology (good-bye, American Can and LTV; hello, Google and Microsoft). That’s not the case among charities. There, the list remains essentially stagnant — to the ultimate detriment of innovation and public service.
3 Ways to Donate Wisely
So what should you do if you want to donate wisely?
It is hard to precisely identify the most effective charities delivering concrete, measurable results. Charity rating services like Charity Navigator, the Better Business Bureau Wise Giving Alliance and CharityWatch will tell you how charities spend their money, but not whether that spending is effective. (Charity Navigator says it plans to start rating effectiveness in 2014.)
But there are three ways I think you can find charities that deserve your contributions:
1. Do your homework. Great charities do exist, but as with financial investing, social investing takes diligence.You need to do some research, review nonprofit websites and published reports and share information among your friends, peers and other like-minded givers.
The best charities will be transparent and accountable to their stakeholders. They’ll publish specific goals, research and evidence-based assessments on their websites and elsewhere.
In my book, I mention a handful that have demonstrated they make a real difference in people’s lives.
One is the Nurse-Family Partnership, a Denver-based community health program in which registered nurses visit homes of low-income, first-time moms in 32 states. Its evidence-based research has shown long-term improvements in health, education and economic self-sufficiency for families working with the partnership’s nurses.
Another is Youth Villages, a dynamic charity based in Memphis, Tenn. It’s dedicated to helping emotionally and behaviorally troubled children and their families and has an 80 percent long-term success rate.
2. Follow the leaders. Measuring and evaluating charities is difficult and time-consuming. It’s sometimes better to follow the lead of experts who review charities for a living and support the organizations they deem worthy.
Evaluation organizations, like Give Well; venture philanthropy funds, like New Profit; and foundations, the Gates Foundation and The Robin Hood Foundation, put extraordinary effort into locating and supporting the best charities.
When Warren Buffett decided to start giving away his billions, he began by pledging much of his wealth to the Gates Foundation, secure in the knowledge that its professional staff would put his money to good use.
3. Band together. It may make sense for you and your family or friends to pool together your resources and ideas on charitable giving.
(MORE: Giving Circles)
Give Well started when eight friends pledged to unite and identify the best charities; it turned into a career for two of them. Give Well has since spent thousands of hours selecting its top-rated charities: Against Malaria Foundation, Give Directly (which distributes cash to extremely poor individuals in Kenya) and Schistosomiasis Control SCI (which treats children for parasite infections in sub-Saharan Africa).
Some people have created charity clubs or giving circles, where they regularly join up with like-minded donors to share information about effective charities and donate accordingly.
Finding worthy charities isn’t easy, but the reward is more than just helping people. It is ensuring that America’s best and most effective charities can flourish.