Philanthropy

Often, when it comes to charity, coming up with the cash to donate or the time to volunteer is the easy part. Finding the right organization to support is a bit harder.

That’s because while you can allow your heart to lead you in a general direction, the final decision needs to be made by your head. Why? Because when you are considering giving away a limited resource—and your money and your time both fall into this category—you need to understand there are more than one million organizations in this country with their hands out. And they are not all equally deserving of your efforts.

It’s perfectly fine—smart, even—to start by making a list of the causes that hit close to home. That could mean your kids’ school, your alma mater, or a friend’s organization. Or it could be more vague: Cancer, hunger, the homeless.

If it’s a small-scale group, like a local school, you probably have a good idea of where the money is going and for what it’s going to be used. But if you’re in the camp that supports a cause or two but doesn’t necessarily know where to put your money, you need to do some research.

My favorite place to start is a database called Charity Navigator (www.charitynavigator.org). On the site, you can type in the name of the charity that interests you, and it will spit back a report detailing the group’s mission, their efficiency in tackling it, as well as how they spend donated money. You can see how much money they took in during the past few years, who heads up the organization, and how much that person is paid. And you can read the ratings given to that charity by the folks at Charity Navigator, as well as comments from other donors. Another solid charity website is guidestar.org.

If it sounds like there are a lot of numbers in that report, that’s because there are. So let me tell you what to zero in on:

Program ratio: This ratio tells you what percentage of the charity’s income goes to programs, as opposed to administrative costs and other overhead. It’s a great place to start, but understand you shouldn’t line up charities of all shapes and sizes and pick the one with the higher program ratio. If you’re going to compare groups by this number, you need to compare apples to apples. You compare the food banks with the food banks, the homeless outreach programs with the homeless outreach programs, and the museums to other museums. Why? Because some causes incur more administrative costs. A museum, for instance, needs security, a large building, insurance, and a cleaning staff. A food bank doesn’t.
Growth: Revenue growth and growth in program spending should go hand and hand. If they are consistent from year to year, that signals a healthy organization healthy, financially speaking. Struggling charities, while in need of donations, may not be around long enough to use the money in the way you want them to.
Capital: You should look for charities that have at least six months’ worth of savings, so they can fund their operations if they experience a slowdown in donations.
CEO pay: Charities are required to disclose how much their CEOs earn, but again, you want to compare similar charities, not across the board. If one food bank’s CEO earns $200,000 and a handful of others earn only $50,000, it’s safe to assume that something might be amiss.
If your charity isn’t in Charity Navigator’s database, or you’d rather go straight to the source, you can ask the charity directly for a copy of their 990, which is the IRS form all charities have to file and the place where Charity Navigator gets the bulk of its information. Copies of charity 990s are also available on guidestar.org.