Tim Harford’s weekend magazine column:
You’re a generous person, I can tell. But how much do you think about the effectiveness of your charitable donations? One handy way to size up a charity is to pay attention to how much money it spends on overheads such as administration and fundraising, rather than frontline do-gooding. There’s only one small problem: this ready reckoner is enormously misleading.
For people who think about the effectiveness of charities, this insight is not news. Givewell, a charity that evaluates the effectiveness of other charities, complained five years ago about the “pervasive attitude that nonprofits need to get all their money right to the needy, and do all their administration on the cheap”. Dean Karlan, an economics professor and co-author of More Than Good Intentions, analysed Givewell’s recommendations and found that outstanding charities tended to spend more money, not less, on administration and fundraising.
Caroline Fiennes, author of a new book, It Ain’t What You Give, It’s The Way That You Give It, explains that fundraising costs tend to be determined by donors — who can generous or stingy, ignorant of the cause or conscious of it. Meanwhile, administration costs could include efficient logistics, accounting or purchasing systems — plus paying for rigorous evaluation.
