Not all giving need be in the form of a check.

Photographer: Spencer Platt/Getty Images

Be Smart About Charity

Barry Ritholtz is a Bloomberg View columnist. He founded Ritholtz Wealth Management and was chief executive and director of equity research at FusionIQ, a quantitative research firm. He blogs at the Big Picture and is the author of “Bailout Nation: How Greed and Easy Money Corrupted Wall Street and Shook the World Economy.”
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The year-end holidays are when the interests of donors and charities are most in sync. However, after several disturbing news reports, I decided it was time to revisit how to give away money. With a bit of digging and diligence, you can make your generosity more effective and efficient.

First, the bad news: A few months ago, we discussed why the Red Cross had moved to naughty from nice on my list of charities. Due to its performance after Hurricane Sandy -- a result of incompetence and an utter lack of transparency (Pro Publica has all the details) -- I consider it off-limits.

Then there was the pre-Thanksgiving story of Savers Thrift Stores, which was accused by the Minnesota attorney general of “pocketing more than $1 million that should have gone to charities,” the New York Times reported.

It’s almost enough to turn a generous person into a Scrooge. But don’t let a few mismanaged (or worse) charities dissuade you from giving. In addition to the help you provide, studies show it's one the best things you can do for your personal satisfaction. Money can buy you happiness -- all you need to figure out is how to give it away intelligently.

But nothing these days is easy. What should be a simple process -- helping a worthy cause or people in need -- has become confusing and challenging, rife with incompetence and fraud. (Why does that sort of behavior sound so familiar?)

We are here to help.

Let's start with why you give: In addition to the aforementioned happiness quotient and the obvious spiritual reasons, for many people the main goal is to try to make the world a better place. The best way to do that is to make sure your money goes to the intended cause. Some charities are more efficient -- often, much more -- in delivering dollars where they are most needed. The worst charities have overhead costs that can approach 90 percent of donations. In other words, for every dollar you give, one thin dime makes it to the intended beneficiaries. That doesn’t seem either efficient or charitable.  These are charities in name only, managed by people who take advantage of the generosity of others.

The best defense is to become informed about the organizations that are deserving recipients of your contributions. Toward that end, let me suggest two websites that have done an excellent job in helping to separate worthy charities from the unworthy.

The first is Give Well. Its approach is to find “evidence-backed, thoroughly vetted, underfunded charities for individual donors to support.” If you want to make sure your money is going to have an impact, this is a good place to start.

The second site is Charity Navigator. It rates thousands of charities based on factors that include accountability, transparency, efficiency, financial health and administrative overhead -- including executive compensation. I also like their list of the 10 best practices of savvy donors.  

A few other points to consider:

  • Matching programs: Does your employer or any other organization you are a member of have a matching holiday-gift program? If so, then you can increase the size of your donation.
  • Donating time: I have a friend in private equity who for the past 20 years has been serving meals at a church-run soup kitchen. It costs her nothing but her time. She can certainly write a big check, but she says this is the most fulfilling work she does all year.
  • Don't give to phone solicitors: The people who call you seeking donations usually are not volunteers; they are commission-based telemarketers. They keep much of whatever you donate. No thank you.
  • Avoid giving cash: Cash is always at risk of sticky fingers.
  • Understand cash-register donation programs: It seems that every supermarket and big-box store these days asks for a charitable contribution. Unless you are familiar with the program and know that is efficient and effective, take a pass.

This is the time of year when our natural impulse is to share our blessings with others. With a little research and thought, you can make sure that anything you give has the greatest impact.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Barry L Ritholtz at britholtz3@bloomberg.net

To contact the editor on this story:
James Greiff at jgreiff@bloomberg.net