Donate Effectively: Improve your Impact, feel good!

Improve your impact, your effectiveness, and feel good while making the world a better place. We discuss how to find good charities both near to where you live and far away, including looking at the following websites:

https://www.guidestar.org/

https://www.charitynavigator.org/

https://www.givewell.org/

We talk about how to approach donating money proactively to optimize the good you do as well as the good you feel.

TRANSCRIPT

Donating Effectively: Improve your Impact, feel good!

John: We've been talking in recent episodes of Friends Talk Financial Planning about giving gifts to people and how you can really maximize the meaning and value of those. Today we're going to talk about something else that has a lot of meaning and value, and that's giving charitable donations to organizations. So stay tuned to hear more about how that can really add meaning and value to your life.

Hi, I'm John Scherer. I run Trinity Financial Planning, a fee-only firm in Madison, Wisconsin.

Bridget: And I'm Bridget Sullivan Mermel, and I run a fee-only financial planning firm in Chicago, Illinois.

John, donating money is one way that people can bring more meaning to their lives. And so it's something I've been really interested in finding out about how to optimize. So I want to talk about a bunch of tips in that regard.

The first idea that I've got is: think about two different things, and you don't have to have answers to both of these, but having answers to one or the other is good. So one is, “What problem am I trying to solve?” or the second thing is, “What do I value?” and then give gifts according to that. So, for instance, you might think, “I want to solve the problem of animals being dislocated from their owners during a hurricane.” Or you might think, “I value education for girls, or for people in general.”

And so my point is to think first about what you value or what problem you're trying to solve, and then go find the charity, rather than waiting to get charities pitching you and then react.

John: This is really great. So as you think about those, animals that are displaced by hurricanes, let's just say that, and that's a really specific one.

Bridget: You. might say animals, first. Yeah.

John: So you might say, “Okay. That's what I want to do.” Then how do I go about finding, how do I discover the charity that meets that? Is that…

Bridget: Well, first, you want to look for charities that are reputable. And you want to also think, “What do I care about more, near or far?” So there's animal charities that are near to you. There's the buddy shelter down the street. And then there's the hurricanes. And then there's the elephants in Africa that don't have enough space to roam.

John: Sort of the local vs. global. That thought process, right?

Bridget: Yeah. And so it's going to be easier for you to find and monitor charities that are local than charities that are international, obviously. But that's why “What problems do I have?” and “What are my values?” are interesting questions to look at first, because then you can apply those. Those are my concerns, and then you can look for different places to say, “Where do I donate?”

John: That's great.

Bridget: I'm just going to share a few websites that help you, again, once you’ve started identifying charities, particularly ones that are farther away, to say, “Okay, are these decent charities? How are they rated?” And I've got three different websites here. John, can you see this?

John: Yes, I see it. GuideStar’s up, right?

Bridget: So this is GuideStar, connecting you with the nonprofit information that you need. Another one is Charity Navigator, and this is kind of the grandparent of the sites. This takes ratings and gives every charity, I think it's a 1 through 5 rating, and a lot of it's based on how they handle their financials and how much money they actually give.

So that's a big thing in the charitable world is how much your administrative expenses and marketing expenses -- because if you think about it, getting the word out is expensive – vs. how much money do they actually give to the programs? So Charity Navigator helps you figure that out.

John: Does that come… And what you're saying there is, for every $1,000 they bring in, $600 goes directly to the program, or $800 dollars, or whatever the number is, that sort of thing?

Bridget: Exactly. Yeah. And every charity has administrative expenses and probably some marketing or advertising. Just to get the word out is important. Okay. And then Give Well. Again, they're looking at the charities that improve lives the most per dollar. Okay, so they are going for how many… they take a very scientific approach to gift giving.

And that's another issue: the emotional approach vs. the intellectual approach. With charities, it can be kind of dominated by emotional appeals, the person who looks like they're starving, the child who looks like they're starving. The more pitiful, the more donations. Which ends up with fatigue. You end up with empathy fatigue with these donations.

And on the other end of the spectrum is people that are -- and I think Bill Gates has made this approach very popular – Like, how many lives can we save? How many people can we take out of poverty? Okay, mosquito nets! Or some obscure thing that you wouldn’t have ever thought of can really save a lot of lives. And they're just looking at statistics, they're not looking at any individual person. So you can kind of see the two ends of the spectrum on that. And I’m actually not promoting one or the other. I'm just saying they're both out there.

John: It's interesting as you're explaining this, Bridget. And, again, I really appreciate the thought that goes behind some of these concepts, to start off with, rather than responding and reacting.

It’s kind of like the rest of financial planning. You don't react to the outside forces. It's starting with “What are my goals? What do I value? What problem do I want to solve?” And then figure out the solution. As opposed to “Here's the solution,” and putting the cart before the horse sort of thing.

Bridget: Like, “Yes, I value this.”

John: Yeah, right.

Bridget: And then the next thing I want to talk about is: pay attention to results. So again, it's kind of easier with Charity Navigator, because you can look it up again. But when you donate money to your local people, you want to say, “Okay, did they acknowledge me? Do I see what this organization is doing? Do I understand how they spent the money?” That type of feedback really helps.

Again, you don't want it to just be an unaccountable thing that you never hear about. It's kind of like getting a thank you note is important. You want them to have their act together enough so that they do that.

John: Interesting. It's sort of like in other walks. If they've got that part of their act together, that means that they probably have other parts of their act together too, right? It’s sort of the smell test, right? Like, “Okay, it feels good.” Then there's probably good indications of other things.

Bridget: Yeah. And speaking of feeling good, now we're going to move over to the warm glow of gift giving. This is actually a research topic: how to get the warm glow. And one interesting finding that I’ve found with the happiness of giving is that the dollar amount that you give is not that relevant to the warm glow. So giving $50 doesn't give you 5 times as much happiness as giving $5.

So if you're just trying to optimize how good you feel, small donations are a good way to do that. The charities would definitely beg to differ, although they like getting small donations, no doubt about it, because they like to get you in their bank. But if you're just thinking about it from your happiness perspective, small donations, big pay off.

John: So would it be fair to say then… that's an interesting concept… So if I have $1,000 that I want to give away, giving 1, $1,000 gift to a charity or 10, $100 gifts. It's not exactly 10 time as much, I'm sure. But there's more psychic value, or the benefit that I feel is more by spreading it out. Is that what the research shows?

Bridget: Yeah, exactly. And 1 gift, that warm glow is going to go away pretty fast. It doesn't stick around that long. You might feel better in a week, or maybe a month, but a year from now you're not going to have that same warm glow. But the $100 again, you're giving yourself something to feel good about as you go on.

John: Is there any difference, as you talked to earlier about? You think about as we're planning our gifting for charity, local vs. global, near vs. far. Is there any difference in how it feels from the gift-giver standpoint? Is there any research about giving as I was just thinking about it, like giving locally, where I can spread out and I can see those places where I've made a difference? It felt like maybe locally would be more valuable from that standpoint, from a feeling standpoint? Or is that about the same whether it's local versus global?

Bridget: I have not seen any research directly about this particular topic. And I suspect that it depends on the person, but I am not sure.

John: How do you think? I'm just curious. I don't really think about that local vs. global very often. Do you have advice for people or best practices as far as how you split up your money?

Bridget: I think people are different. Yeah, I try to say 50-50, but it really depends on the person. There's some people who want to join the Peace Corp. They want to go to a different country and try to make life better in a different country.

Now, then there's some people that want to make life better at the local hospital. So I think that people just have different acclamations and that there's not right or wrong to it. And maybe more people have… I think that it might be easier to find out about some of the global charities. But I think that people can tend to forget that the school down the street needs money, too. Not just the Afghan schools that desperately need money.

John: Well, talking about that on the personal level of that, maybe it's a good time to circle back on action items that people can take that are watching here. And the two things that I really got from this are to start with a plan, meaning “What's your meaning? What's your why?” Is it to solve a problem? Is it what you value? Start with your goal.

And then just the idea that giving actually benefits you, just from the feeling that you get, that there's something to that for you personally. Those are two really big things that I took away from here.

And then the other thing is the 3 websites, especially Charity Navigator, that you can find out how effective your charities are. That was something I thought was really powerful. Bridget, what other takeaways do you have, or things you want people to remember?

Bridget: Those are really the main takeaways that I've got, too. So I think with that, we can wrap it up.

We also like to talk about ACP, or the Alliance of Comprehensive Planners, which is a fee-only not-for-profit group that advocates the type of planning that John and I both do. You find that at acplanners.org. And I think with that we're going to wrap it up. Until next time, John.

John: All right. Thanks so much, Bridget!

At Sullivan Mermel, Inc., we are fee-only financial planners located in Chicago, Illinois serving clients in Chicago and throughout the nation. We meet both in-person in our Chicago office and virtually through video conferencing and secure file transfer.