Every dollar you give isn’t going directly to the victims you’re intending to help. In fact, an average of nine cents of every dollar you donate to the Red Cross for example is going to expenses, like employee salaries and fundraising efforts. This means if you donate $3,000, nearly $300 of that money goes to administrative costs, and that amount jumps to a whopping $90,000 for a donation of $1 million. That nine cents per dollar isn’t necessarily going to waste, however. Charities like the Red Cross need money to keep their organizations running, pay employees, raise funds and, in fact, actually ensure that your money is used properly.
Who Should I Donate To?
To get the biggest bang for the buck, CharityWatch advises, consumers should donate to charities that use at least 75 percent of donations for direct aid. The Red Cross, at 91 percent, is well above that mark. Another charity, Feeding America, generally puts 98 percent of donations toward feeding the hungry, although in the wake of disasters 100 percent is used for feeding victims, thanks to funding Feeding America receives from insurer AllState for its disaster relief program.
The Salvation Army typically spends 82 percent of donations on aid. But during disasters, it draws from its budget so it can direct 100 percent at relief efforts.
Since this information isn’t always clearly stated when you’re making a donation, it helps to research each charity first. Charity Navigator is a good place to start; rates charities and provides information on the percentage of each donation spent on charitable programs versus overhead expenses. CharityWatch provides similar figures for cash-only donations (not rating based on donated food or clothing, for instance).
While crowdfunding websites allow people to donate directly to individual victims without the overhead costs of large charities and nonprofits, fees can eat away at your donation. Three of the most active sites — Fundly, GoFundMe and GiveForward — charge transaction fees of 5 percent. That means 95 percent of your donation gets into the hands of victims. Extra credit card processing fees of as much as 3 percent are often charged as well.
Charities might say that they give, say, 80 cents of every dollar to support a cause, but all too often that 80 cents is going to fund some other non-profit who is spending 80 cents on the money that it receives, then your money is being poorly spent.
Where Does the Money Go?
Every substantial charity that does business in the United States must file an IRS Form 990 that contains a lot of operational details about how the organization spends its money. You can generally get a 990 form by searching around for it online. Look into the substantiality of grants the charity gives out to other organizations, and into executive compensation as compared to other charities.
GiveWell.org helps you out by researching charities and rating the pros and cons of various charities. They recommend charities that are “evidence-backed, cost-effective, and capable of effectively using more funding.”