Donating to charity is a lot like
everyone says it's a good thing, though few people do it.
All the major religions endorse
The Muslims practice zakat.
Jews have a concept called tzedakah.
The concept of tithing – giving away 10% of your
wealth (however you define that) – comes from the Old
Testament, but the New Testament, which Christians hold
dear, has plenty to say about charity.
Jesus supposedly said, “Give to the one who asks you,
and do not turn away from the one who wants to borrow from
you.” After the
United States ended state support of churches in the early
nineteenth century, passing the charitable plate around
during Sunday worship became a morning ritual.
Hinduism features ten niyamas, practices that every
Hindu should ideally follow.
The third is called dana or giving generously without
thought of reward.
Buddhism encourages the giving of something without
expecting anything in return
So the idea of donating to a charitable
cause is ingrained into nearly all of us.
We're taught from a very early age that charity is
good, almost an obligation.
Charity looks a lot like the
microbrewery market today.
Every week, it seems like there's a new beer brand to
try and charity to donate to.
If you walked into a bar and saw thirty different
beers on tap, how would you know which one to order?
And when it comes time to share your hard-earned dollars, how do you have any
clue where to send them?
One obvious answer is to sample the
beers and donate to the charities you've actually heard of.
Most of us practice this option by default.
What you know about all comes down to how well the
choices have been marketed to you.
The beer manufacturer and the
charity expend money and effort on campaigns to get the word out there and encourage
you to spend.
The recent ALS Ice Bucket Challenge is
an example of a massively successful charitable campaign.
A person dunks ice cold water on his head, films it,
nominates a few other people to do the same, and posts the
There are different versions of the challenge, but the gist
of it is that you donate a smaller amount, say $10, to the
ALS Association if you're willing to bathe yourself with
arctic temperature waters and post online video evidence of
having done so.
If you refuse the icy shower, you donate a higher amount
like $100. In
practice, people both dunk themselves and donate the
higher amounts. Last
year, without the ice bucket challenge, ALS raised $2.5m.
This year, by Labor Day, ALS had raised over $100m.
The ALS campaign was incredibly
successful because it tapped into more than one social trend
Most of us love following what's currently fashionable.
Getting celebrities and business tycoons involved was
The rich and famous, once nominated, had to
participate, although I'm sure it didn't require too much
arm twisting to get them to show in public how selfless and
caring they are.
The high profile soakings encouraged a wave everyone else
was more than happy to surf along with.
Then you have people
in love with sharing videos, particularly when they're in
them doing something 'beneficial.'
Bill Gates went so far as to hire a professional
videographer and editor. Everyone
longs to feel part of a wider fraternity.
Icing yourself in
under a minute gets you into the 'exclusive' club.
And the challenge merges perfectly with the new
millennium philosophy of slacktivism, doing practically
nothing but feeling like you're changing the world.
You couldn't engineer a more perfect
Ice Bucket Challenge made people feel good about themselves
on multiple levels while costing ALS virtually nothing to
was like a viral video, except this time, there were
multiple self-produced videos, and each video wrung out a
lot more money per limited viewings than anything Google
pays its top YouTube partners.
Without a doubt, the Ice Bucket Challenge will be a
case study dissected in business school courses for decades
Amidst all this wet wonderfulness, one
thing I'm sure most donors never bothered to ask is whether
ALS is actually the most worthwhile charity they could be
donating their money to.
Because of all the publicity the ALS
Association has gotten from the challenge, there were bound
to be writers surfacing to disparage the association and its
cause. One broke
down the ALS Association's expenses for fiscal year 2013 and
slammed it because only 27% of the funds went towards
research, almost $1m was spent on lobbying, and total labor
costs totaled around $12.5m, about 50% of what ALS received
that year. High
salaries were a major gripe.
The President/CEO was paid $339,475 and the Chief
Financial Officer $201,260.
Another circulating article cited on Facebook showed
how ALS as a disease isn't that significant.
In 2013, less than 7,000 people died from ALS in the
United States and Canada.
Heart disease, by comparison, kills 100 times as many
people but has just 2½ times the funding.
On those figures alone, ALS looks like a con.
As you shall soon see, however, judging
how meritorious a charity is for your cash isn't always so
cut and dry. Charity
Navigator, itself a charity, has tried to establish a
utilitarian way to grade charities.
Among the criteria they consider is the percentage of
total functional expenses spent on the programs and services
the charity exists to provide.
Any charity spending less than a third of its budget
on program expenses is given a 0-star rating for financial
Another measuring indicator is
administrative expenses, the amount spent on management and
The lower this figure, the better.
Then there's fundraising expenses and fundraising
efficiency – how much does the charity spend on fundraising
and how much does it cost to raise a dollar.
Last, there are factors like primary revenue growth,
program expense growth, and working capital ratios.
Combining the Charity Navigator
measurements, the ALS Association scores an average of 90
out of 100, an excellent measurement by any standard.
Which is it then?
Is ALS a con game overpaying its senior staff and its pundits in Washington or an
exemplar of a charitable institution?
Theoretically, I suppose it would be
nice if every dollar donated to a charity made the maximum
you're looking at health issues, heart disease and cancer
are more of a threat than ALS since many more people are
again, the American Heart Association and the American
Cancer Society, two of the more famous charities devoted to
America's two biggest killers, score worse than
ALS on most of the key metrics.
Only 59% of the American Cancer Society's budget goes
towards program expenses.
Impact can always be measured in
more than one way.
Both the ALS Association and the American Heart
Association spend about three quarters of their budget on
relevant programs, considered a respectable amount.
The more worthwhile charity might be assessed by
which disease impacts more of the population, as the
complainant suggests, but also perhaps by how effective each
charity is in reducing the numbers of people afflicted with
or who succumb to that disease over time.
In the United States in 1990, 489,171 people died
from coronary heart disease.
In 2013, that number rose to 596,577.
If you account for the rise in the U.S. population
between those two years, the number of deaths from coronary
heart disease dropped by about 3.4%.
The mortality rates
for ALS, on the other hand, have hovered around 2 deaths per
100,000 people per year for over two decades. By these
measures, it looks like whatever funds were devoted
towards heart disease made more of a dent than anything that
went towards ALS.
But these figures, too, can be deceiving, because
there are multiple heart disease charities besides the
American Heart Association raising money for heart disease.
And just because normalized mortality rates dropped
by 3.4% over a quarter century doesn't mean that the
charitable funding from the heart organizations was
responsible for it.
Charities are businesses like any
other. And while
they may be non-profit businesses, their objective is still
to maximize profits (= donations minus expenses) which then get apportioned out for
programs, lobbying, marketing, and so on.
These charities compete in the same arena for labor
as for-profit businesses, so they have to offer commensurate
salaries, benefits, and pensions.
We think of charities as tiny penurious
offices with employees working for free or for next to
nothing, a stupid notion given the climate they're forced to
And yes, they do compete, just like any
other private sector business.
It's easy to note Apple, Samsung, and Nokia duking it
out in the smart phone markets.
Or Hertz, Avis, and Enterprise in the rental car
markets. But we don't
think of charities as competitive entities, do we?
All of us have a finite number of dollars we earmark
for charitable causes, and these charitable organizations
must compete for our attention long enough to convince us
that what they're selling (a cure for X, new schools for the
homeless children of Y, suitable drinking water for the poor
population in Z) is worth our investment. And they also have to compete to get legislators and Washington budget
bureaucrats to dish out limited piles of research funding. That's where overpaid lobbyists come in.
In the real world, the highest quality
product or service doesn't always win.
The best marketed one which appeals to consumer
Back in the 1980's, JVC's VHS trounced Sony's Betamax on the
war over videotape standards.
Sony's Betamax was the superior technology, but JVC's
VHS could tape for longer periods of time.
PC's ko'd Macs in the 1990's, despite the PC's
inferior operating system, because PC's incorporated
processors and operating systems which were affordable to
So even if ALS is an 'inferior' cause
next to cancer, heart disease, or diabetes on an objective
basis, that is as irrelevant as one book being much better
written than another but the more poorly crafted book being
the far better seller.
ALS had the superior marketing campaign and was able
to appeal to consumers to buy into them
over their competitors. Perhaps the ALS Association in 2014 is overfunded considering the limited scope of the disease, but that's like
saying Google, Toyota, and Disney made too much money last year because people chose to spend money on their products and services.
As if this needs to be stated,
purchasing decisions aren't always logical.
Harvard University is, objectively, a better school
in terms of prestige, reputation, history, and noted alumni
than Rice University, but a student may still opt to attend
Rice if he prefers the Texas climate to Massachusetts' or if
his father, his grandfather, and his great grandfather all
Some charities just resonate closer to home.
If your father died
from ALS or you're the great grandson of Lou Gehrig, you'll
be donating to the ALS Association over any other charity
even if only fifty people per year were dying from it.
Emotion, not logic, dictates your decisions.
The Kids Wish Network is considered the
worst charity in the United States since less than 3 cents
of every dollar donated actually goes to help the kids whose
wishes the charity is supposed to grant.
You'd always be smart
to do some due diligence before devoting money to any
cause, however small, can be a good cause if you believe in
it. At the end
of the day, it's up to you, voting with your own money, to
decide if the charity of your choice can change the world.