You're a savvy spender. You use the internet to compare prices, and in a tight economy, you're likely to spend a little time finding and settling on the best price to maximize your budget. Given your smart spending habits, you probably are thinking that the charity most deserving of your money this season is the one that spends the least amount on administrative costs. Before you visit Charity Navigator to see which group can divine the lowest overhead ratio, STOP! Let's think about this a minute.
If you had a choice this Christmas of giving to an organization that frees 10 girls from sex slavery in India and spends 10% on overhead costs or a group that rescues and rehabilitates 100 girls from the same desperate situation but spends 20% on overhead, I bet you'd choose the one that has the greater impact but spends a little more on overhead.
Overhead ratios are popular proxies for measuring efficiency. Especially when the charities you're interested in supporting are in developing countries. It's one thing to be able to see the impact of the local YMCA in the community but a whole other issue when you want to give to an organization in Zimbabwe that you can't see, where you know the government is corrupt, and with whom you may not have any personal relationships but where you know the need is great. It's not that these overhead ratios are a bad idea--it makes sense that you would want to contribute to an organization that spends more on children in need than on mailing out fund-raising letters. But efficiency measures miss the point and are often incorrectly calculated. What we really want is to give to organizations that are effective in changing people's lives for good. The trouble with this aspiration is that it's hard to figure out who is really effective at rehabilitating trafficked girls, healing sick people, eliminating homelessness or eradicating poverty.
When you think about giving to charity, it's my guess that you first give to causes you care about, to organizations you believe in or to programs that your friends ask you to support. If you have any largesse left after reading heart-tugging stories that pull at your wallet, it's possible that you might be looking for some way to compare various charities and decide which ones you will support.
This giving season, leave the "overhead" to Santa as he navigates his way down your chimney, and look for organizations who report on results, find user-reviews of non-profits at greatnonprofits.org, globalgiving.com, myphilanthropedia.org or givewell.net, and support organizations who work to measure, as best they can, the tangible ways that people's lives or the systems that impact them are changed.
Senior Fellow & Deputy Director
Center for Global Prosperity