Many people donate to charities. Whether it’s a physical item like food or clothing, or in monetary quantities, donating comes in many shapes and sizes. With the abundance of social media, donating to charities away from home and across the globe has become easier than ever. But has it become too easy to the point where people become complacent as to where their money is actually going, and to what cause is actually being supported?
Charities exist across different levels of a community. There are charities that operate at more of a local community level, like the local food bank, or across a much wider demographic such as the Salvation Army, or even global organizations like World Vision for example. The choice to donate is a personal one, and many people choose where to donate based on a cause that hits close to home, or one that they truly believe in. Others choose charities based on how far their donations will go within the organization they are donating too.
Whether you like it or not, charities are businesses, and every charitable organization will usually make it known how much of every dollar donated goes directly towards the cause they are supporting. As with every business, operating costs are involved to help run the operations. These can include salaries, utilities, rent, and other office related and administration costs. This goes for nonprofit organizations as well, where a common misconception is that nonprofit organizations don’t make any money. Well yes they make money… how else would employees earn a salary and the building keep its lights on? These organizations do of course earn revenues, but earn no net income. In other words, the expenses are equal to the revenues. There is zero net income and zero retained earnings carried over. Volunteer organizations are again different in that the front line employees are in fact volunteering their time and don’t get paid. These organizations will typically receive some sort of funding from various levels of government, or other non-government organizations (NGOs).
Seeing how far a dollar donation can go can be a huge factor in influencing where someone will donate to. The Canada Revenue Agency’s Charities Directorate track down and calculate how much money has been donated, and how much of those dollars go directly towards supporting the charity. These Statistics are then reported by Statistics Canada. MoneySense Magazine publishes an article every year that states the percentage of donations per charity category that went to support the charity programs. In other words, it shows the percentage of every dollar that went to charity. The summary of the results from 2013 were:
Table 1: Donation Dollar Efficiency per Charity Category
Religion based charities actually ranked the highest at 85%. An example of a charity in this category would be like a Salvation Army. Ranking the lowest were charities in the Health Category. Charities here would be like the Heart and Stroke Foundation, Red Cross Society, or the Kidney Foundation.
It’s not surprising that many international health organizations rank the worst in terms of optimized dollar donation usage for the charity cause. Many expenses are incurred, especially when it comes to marketing and advertising to reach a global audience. For example, roughly 72% of donations to World Vision actually go towards the cause, while the rest goes to overhead costs like fundraising efforts, and other administration costs. Habitat for Humanity Canada has roughly 73% of total donations going towards its programs, while fundraising costs and administrative costs remain high with the inherent high costs per family for building a home.
Donating to charities not only a self-fulfilling experience and an opportunity to help out less fortunate people, but in some cases your donations can be matched either through an employer or through government organizations. In addition, individuals who donate can receive a federal and provincial tax credit for doing so for the previous year. Charity organizations will offer tax credit documentation that a donor can use for tax purposes, and this documentation will also be used by provincial and federal governments to track all sources of donations, quantity of donations, and allocation of donations. Such information can be valuable at a high level for governments to determine where additional public funding is required. For a Canadian donor with a taxable income less than $200,000, federal tax credits are 15% on the first $200 of donation, and 29% on amounts exceeding $200. Provincial amounts follow the same idea, but with varying percentages based on your province. These percentages slightly change both federally and provincially for taxable income amounts greater than $200,000.
Now this leads me to my last point which some may not agree with and hate me for saying it, but I believe it is worth mentioning here. I’m referring to donations through online funding sites or platforms like Go Fund Me. GoFundMe is one of many crowdfunding sites where people can donate to causes posted on the website who are usually trying to raise a set goal of money. While sites like these do have their place in being able to reach out for donations at a global level efficiently, there are many issues with these kinds of platforms. Firstly, you don’t receive any tax receipts for making donations, and there is no record of the donation being made in the first place, nor is it recognized by the provincial/federal governments. Any registered and regulated charity will provide any donor with these kinds of tax documents. Second of all, there is no accountability for what the money you donated is used for. You have no breakdown of operating costs or percentage of every dollar donated actually going to funding the cause, and there is very little regulation or follow-up to ensure that money being raised is in fact being used appropriately.
Not only are these kinds of platforms unregulated, but they’re perfect for some individuals to knee-jerk react to the latest and greatest “fad cause” pumped up through social media, and who aren’t actually aware of how to properly contribute to a cause through formal donations and regulated platforms. Crowd funding can become quite effective in skewing people’s decision making by having, what my good friend at YWealth stated perfectly, “financial proxy wars” through unregulated platforms, be it political or nonpolitical, and raising a boatload of money towards the cause. MarketWatch published an interesting article last week on January 9, 2019 stating the top 6 funded causes on GoFundMe. Funds for the proposed border wall between US and Mexico ranked near the top, while funds for 700,000 refugees in Bangladesh were at 1/10 of the border wall funding. It’s easy to see how relatively ranking the causes based on money raised and correlating that with “highest importance” can easily skew perceived global funding priorities, and may or may not align with a particular individual’s personal beliefs set.
Before handing out money out of the goodness of your heart, it might be worthwhile to consider and understand where your money is going and how it is being allocated within the charity organization of your choice, and what cause you are in fact supporting. Make sure to receive donation tax documentation as well from the organization you are giving money to. Ensure your intentions to help out others around the world are being met with efficient allocation of your donations through a regulated and ethical platform.