Personal Finance

How To Evaluate A Charity Before Giving Them Your Money

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Charitable giving is big business. Americans give more than $1 billion a day to charities — more than $400 billion a year – according to the Giving Institute, a national organization that is committed to enhancing philanthropy. Most of that money actually comes from individuals, not corporations and foundations. This proves that Americans are incredibly generous and charitable.

Unfortunately, it also means that there’s a ton of money involved. That sheer volume of cash attracts fraudsters and others who have questionable charitable motives. In fact, charity scams are one of the fastest growing areas of consumer fraud, according to the FBI. To avoid getting taken advantage of, you should carefully evaluate any charity you are thinking of donating to.

It’s great that you want to give back and help out those who are less fortunate than you. However, you’ll want to make sure your money is actually going to help those in need, and not just line the pockets of some executive. Here are some tips on how to evaluate a charity before making a financial donation.

Research The Charity

When properly used, the internet can be a great resource. You should definitely use it to research any charity you’re interested in making a donation to. For starters, check out the organization’s website. Look at the people who are running the charity. Do you know who they are? Do have a history of scandals or shady behavior?

Then consider how long the charity has been in existence. Organizations like The Red Cross that have been around for a longtime, and can be considered fairly trustworthy. Be skeptical of any charity that suddenly pops up. You will often see them in the wake of natural disasters or large social movements. While you might think you’re doing a good thing by donating to “Hurricane Relief” or “Black Lives Matter,” you could be getting duped. There are plenty of official-looking websites out there that are completely bogus.

You should also search for any complaints or news articles about your chosen charity. See if they have made any headlines for the wrong reasons. Check if anyone else claims to have been scammed by the organization. Lastly, always be skeptical of any charity that contacts you directly soliciting a donation – especially by telephone. Most legitimate charities do not cold call random strangers asking for their credit card number.

Figure Out Where Your Money Goes

Any legitimate charity will publish a record of their spending. It might matter to you, for example, whether your donation is actually going towards scientific research to cure cancer or just towards NFL players wearing pink armbands in October to “raise awareness.” Those are two very different things your money is being spent on.

There a few key things to watch out for. The first, as we just mentioned, is large amounts of a charity’s budget being spent on some vague category. You might want to dig deeper if a huge chunk of donations are being spent on “raising awareness” or “fundraising” or “community outreach.” Without more details, those types of expenditures can cover a wide range of spending.

The second thing to watch for is obscenely large salaries for those at the top of the organization. Sure, managing a multi-million dollar charitable organization is a hard and important job. Presidents and CEOs can often earn six-figure incomes for their efforts. Where you draw the line is up to you, but we would argue that there’s a difference between a charity president making $250,000 a year and one making $2.7 million (or more). Whatever you decide, make sure your decision is an informed one before you give up your money.

Be Mindful How You Pay

Most legitimate charities accept payment in only one of two ways – credit card or cheque. If a charity wants a donation in cash, through a wire transfer or via a store gift card, that should raise a large red flag. You should never be making a charitable donation by sending someone a Walmart gift card, for example. Trust us.

Be sure to track your charitable donations throughout the year. Keep an accurate record. You should receive a charitable tax receipt for each donation made. Those will help you out a bit on your income taxes.

Here’s one last pro tip. Be sure to scrutinize your credit card bills every month. Make sure that you are only charged the amount you agreed to donate. Many scammers will trick you into a “one-time” donation that is actually a recurring monthly charge. You may not notice it right away. Make sure to only pay the amount you agreed to, and nothing more. If anything looks irregular on your credit card statement, be sure to dispute the charges with your card provider.

Watch For Scammers and Tricks

Scammers are usually consistent. What we mean by that is they tend to use the same bag of tricks over and over. Don’t be fooled into giving your money away to a fraudster. Here are some warning signs to watch for: being rushed into making a donation; thanking you for a donation that you have never made; using names that sound like those of legitimate charities but are slightly different; talking vaguely about how your money will be used but not providing specifics; and promising sweepstakes winnings in exchange for a donation (which is illegal, by the way).

If you encounter any of these high-pressure sales tactics, consider giving to a different charity. Chances are the one you’re dealing with is fraudulent. Or at the very least, not doing everything they can to help those in need.

Ask Questions

If you’re planning to donate money, then you have every right to ask some questions of that charity. Legitimate and worthwhile charities will welcome your questions and dutifully answer them. Some questions you should consider asking include how much of your donation will go towards “overhead and fundraising.”

The general rule of thumb is that at least 65% of a charity’s total expenses should go directly to serving its mission. No more than 35% should go to overhead costs such as staff salaries, administration, and promotions. If your first choice charity can’t (or simply won’t) tell you how much of your donation goes to the cause, that’s a problem.

Similarly, if they say that 100% of all donations are allocated directly to the helping, that’s another sign of an illegitimate organization. There are other legitimate costs associated with running a charity too.

Be sure to ask a bunch of questions, especially if you’re considering a larger donation. How long the charity has been in existence? How much money do they bring in every year? Where do they spend that money? Do they have a set fundraising goal that they are trying to reach? How many staff do they support? What sort of tangible positive differences have they already made for those they want to help? Again, any charity worth their salt will have no issues answering these questions.

Watch Online Solicitations

While the internet can be a useful research tool, it can also be used to rip people off. As such, you should never click on links in unsolicited emails. Or Facebook and Twitter fundraising messages, for that matter. Also, never donate money by text without confirming the phone number on the charity’s official website.

Going one step further, never assume pleas for help on social media or on crowdfunding sites such as GoFundMe are legitimate. Fraudsters often start fake fundraising campaigns in the wake of natural disasters or other tragedies. A quick Google search reveals dozens of stories about fraudulent crowdfunding attempts.

Lastly, never give a charity your personal information. They don’t need your Social Security number, date of birth or bank account number. Legitimate charities should not require any information from you other than your name, address, and a credit card number. Maybe your email address if you’d like to receive updates from them. Otherwise, there’s no reason for you to overshare.

Additional Resources

Here are the helpful websites that you can use to research the legitimacy of charitable organizations. You can also report any that you suspect are fraudulent. As we said, charities are a billion-dollar business, so there are plenty og watchdog organizations out there trying to separate the good from the bad. Be careful and continue doing good!

The Internal Revenue Service maintains an online database where you can check whether an organization is a registered charity and if your donation will be tax-deductible.

You can report suspected charity fraud to the Federal Trade Commission and the government agency in your state that regulates charities.

The Better Business Bureau’s Wise Giving Alliance, Charity Navigator, CharityWatch and GuideStar provide a lot of useful information on charitable organizations. These sites include ratings, reviews, and relevant tax data. Use them to ensure that your generous contributions find a good home and make a real difference.

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David Ning

David Ning

David is a published author, entrepreneur and a proud dad. He firmly believes that anyone can build a solid financial foundation as long as they are willing to learn. He runs MoneyNing.com, where he discusses every day money issues to encourage the masses to think about their finances more often. Today, he is living his dream of helping others achieve financial freedom by providing financial education to anyone who wants to seek advice. You can get in contact with him on his website, or on social media through his Twitter or Facebook page.

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