For years charitable donations have been on the rise. In 2017, a record $410.02 billion was donated to charity. Research says that giving to others makes us feel happy, and might even be good for our health. But scams and reports of mismanagement can undo those effects.
When money is donated, where exactly does it go? It can depend on a few factors. If the donor designates the money to a specific fund in the charity, that’s where it will go. Some of the funds may be used to grant money to give to local organizations. Those organizations will use the money to bring aide directly to the people. What that aide looks like of course depends on the charity. The dollars given can go a long way. Food banks, for instance, can stretch one dollar into multiple meals by buying bulk and wholesale products. Besides direct supplies, the money may be used for transportation costs to bring the relief items to the community in need.
Undesignated money is distributed as the foundation sees fit. If the charity is trustworthy, it’s best to give undesignated funds. Charities still have overhead costs that rely on donations. This money goes towards administrative costs, like keeping their website running. Even though the money donated isn’t directly being used to buy food or supplies, it’s still a vital part of the charity. Designating funds away from these operational costs can lead to the Nonprofit Starvation Cycle. A food bank could have plenty of designated funds to buy produce, but not enough money to pay for the electricity in their building, and therefore be unable to serve the community.
There is a false belief that if the ratio of these administrative costs to the product costs is too high, it means the charity is mismanaged or untrustworthy. The BBB, Guidestar, and Charity Navigator call this the Overhead Myth. Transparency and accountability are much better indicators.
To make sure the money given is well-spent, it’s best to do some research on the charity before giving. Charity Navigator lets users search charity rankings and breaks down how the charity uses the money it receives. The Better Business Bureau Wise Giving Alliance rates charities on 20 standards of accountability.