Rethinking charity

It’s a common response among charity donors. “I want 100% of my money to go fund the cause.” “How do I know the money I’m donating doesn’t go into your pocket instead of the cause?” “Please make sure that none of my donations goes to overhead, I want all my money to go to those in need.”

But do you know that charities have to pay for overhead? Someone has to organize the charity. Someone has to actually do the work of taking the money and giving it to the cause. Someone has to pay for all the credit card processing fees, transportation and logistic costs, equipment, admin and accounting, fundraising, website maintenance, etc.

The only charity I know of that manages to utilize 100% of all public donations on their cause is charity water. And the only way they can do this is by using a separate bank account funded by a separate group of private donors. These private donors will contribute a little extra to “match” your contribution just to cover all the overhead and operating expenses, including credit card processing fees. They do this just so you’re comfortable knowing that 100% of your donation goes to the cause.

Why do we apply this double standard to charities? Compare them to the standard for-profit company. If you’re the CEO of a video game company, or even a tobacco company, you can comfortably earn millions of dollars and contribute zero, or even negative, good to society. Whereas the CEO of a charity fights for a cause and contributes to the good of society but can’t earn half that amount without causing a public outcry.

If you really want to do good in the world, it’s actually better and more efficient to become the CEO of a video game company and spend half your salary to privately fund a charity, much like charity water’s group of private donors perhaps, instead of actually becoming the CEO of a charity. This way, you get to keep a bigger salary and still have complete control over the charity by being a board member. Think about it, there’s seriously something wrong with that picture.

Charities are forced to keep there overhead low and spend as much as possible on the actual cause. Failing to do that would cause a huge public backlash. That means charities can’t hire bright people, they can’t afford to spend big on daring projects with huge returns, and they can’t even pay their workers the average salary of a for-profit employee.

On the other hand, for-profit companies are free to spend as much overhead as the need, they can find and hire lots of talent, they can afford to take big projects with high risk but huge returns, and no one would even bat an eye if they reported a loss. If a charity reported a loss, just imagine how the public would respond!

If charities are forced to keep their overhead low, they’re operating on a scarcity mindset and won’t have the resources to achieve their goal. Imagine a bake sale with just 5% overhead raising a grand total of $100. Would you prefer that, or a professionally organized fundraising campaign with a 40% overhead but raising a grand total of $1,000,000? Well, guess what? A fundraiser with a 40% overhead would most likely cause a huge public outcry regardless of how much is actually raised.

Or consider this. All the volunteers at the bake sale, instead of spending 10 hours baking and selling cakes, what if they were to work their day jobs for 10 hours and donate their earnings? Wouldn’t that be exponentially more than the $100 raised by the bake sale? Well, guess what? Most people are more reluctant to donate their earnings and would much prefer to donate their time doing a bake sale instead, even though it’s less effective.

The way we think about charity is dead wrong and the TED talk below by Dan Pallotta masterfully illustrates why.

With this, I hope you would reconsider what charity is and rethink what it means to contribute to a charity.

HT Jemma Balmer

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