Monday, December 17, 2007
Money Magazine's January 2008 issue has several articles about charitable giving, geared toward the typical year-end donations many of us make. An article by Jean Chatzky discusses ways to evaluate a charity's effectiveness. A typical approach is to look at program ratio - the amount of a charity's budget that goes to its charitable program as opposed to administrative costs. Chatzky notes several problems with using this tool:
- First, the program ratio simply looks at spending and not at effectiveness. A charity may spend a lot of money on its program without being effective.
- Second, different categories of charitable work have different levels of overhead. Quoting Trent Stamp of Charity Navigator, Chatzky reports examples: an effective food bank should spend 95% on its program, while an effective museum should spend 75%.
- Finally, as with any other statistics, manipulation is possible. A charity may report part of an executive directive's director salary as a program expense, which may not be what a potential donor means by program expenses.
In the end, the best way to ensure that charitable gifts are a good investment is to do some digging using sites like Charity Navigator and Guidestar, as well as information from the charity itself. That takes time, something in short supply in December, so make a New Year's resolution to start early for next year.