You have $100 to give to charity. You should:
- Give $10 each to 10 different charities.
- Give $25 each to 4 different charities.
- Give $100 to one charity.
If you want to maximize the social impact of your charitable giving, what’s the best approach?
Let’s start by understanding what motivates you to give. As reported in Psychology Today, a recent study revealed five major reasons why people donate to charities:
- Trust. You are more likely to donate to organizations you trust.
- Altruism. We believe it’s our responsibility to care for others in need.
- Social. You have a direct connection to the organization you support. E.g., you support research to cure a disease that afflicts a family member, or you buy Girl Scout cookies from a neighbor’s child.
- Taxes. You can do well and good at the same time.
- Egoism. Giving makes us feel good about ourselves.
When choosing your giving strategy, take your motivations into account. With that in mind, here are the pros and cons of each strategy.
If you give $10 each to 10 charities
The pros. You can support the many organizations whose mission you believe in. You limit the times you decline a request from a family member or close friend to support a cause that’s important to them. You can take comfort in the fact that many deserving charities need support, and that no amount is too small to make a difference.
The cons. Every donation you make is subject to some kind of transactional fee — unavoidable administrative costs from your charity’s financial institution. The fee is the same regardless of donation size, so your 10 gifts will incur 10 times the fees of one gift.
The “head and heart” takeaway:
The rationale for spreading your money across multiple organizations is understandable. The world’s problems are complex, no single issue is clearly more pressing than any other, and every little bit helps. You also expand your social network in positive ways.
But from a pure numbers perspective, giving to more charities dilutes the amount of your gift that goes to the organization’s actual work. From a business sense, the more organizations you support, the higher your charitable overhead.
If you give $25 each to 4 charities
The pros. You can balance your support of multiple organizations with the knowledge that you’re giving more to each one. Hopefully, that translates to your gift having a more significant impact on the causes you believe in.
The cons. Although your overhead costs are less than the example above, they’re still higher than if your giving was even more focused. And you’ve sacrificed the ability to support more organizations that you view as worthy, increasing the likelihood that you’ll have to decline some requests.
The “head and heart” takeaway:
This is a “compromise” choice. It makes sense to weigh your interest in many causes with a desire to increase the potential impact each gift can make with the costs associated with each donation you make.
If you give $100 to one charity
The pros. By focusing on a single cause and organization, you’re maximizing the impact your giving can have. By giving more, you may be considered a “major donor” and have opportunities for increased involvement with the organization. You also reduce the amount of your philanthropy that is consumed by administrative fees.
The cons. Following the “all-your-eggs-in-one-basket” approach means that you’ve limited the causes you can support. You will likely need to say no to organizations who need your support and whose mission you believe in.
The “head and heart” takeaway:
Giving to a single charity appears to make the most sense from a strict dollars-and-cents perspective. It provides an organization with the most financial support and minimizes the amount of your giving that covers banking fees. At the same time, if the organization you support is not as effective as you think it is, the impact of your giving won’t be as significant as you had hoped.
Tips for whichever approach you take
It’s tempting to think of charitable giving the way we think of a stock portfolio, and try to spread risk and reward across a range of “holdings.” But charitable giving isn’t about maximizing wealth, it’s about making a difference (and, yes, feeling good about ourselves in the process).
Here are some things to keep in mind, regardless of your preferred approach to giving:
- Develop a plan. Many people give to charity throughout the year and only understand the sum total of their contributions when it’s tax time. A more intentional approach to giving can help you focus your efforts and maximize the impact of your contributions.
- Consider giving circles. If you’re committed to supporting multiple causes with maximum impact, consider joining a giving circle, a group of like-minded people who pool their resources and collectively decide what organizations to support. Giving circles can also provide volunteer opportunities, which enhances the involvement you’ll have with the causes you support.
- Check on the organization’s effectiveness. Just because an organization is doing work you think is important doesn’t mean they’re doing it well. Ask for performance reports and check online ratings. At the same time, heed this warning from Freakonomics: the percentage of money an organization spends on administrative costs is not the single, most important indicator of effectiveness. Instead, focus on outcomes: are they moving the needle on the issue they’re tackling?
- Engage a professional. As your commitment to philanthropy grows, consider working with a financial advisor who specializes in the field. They can help you develop a long-term plan that best matches your financial means with your charitable goals.
But the single most important takeaway? Keep giving and know that you are doing good.
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