Friday, 10 August 2012

Donating to Charity - Check the expense ratios

We all want to make sure that the money we donate to charity gets used in the right way and actually gets to the people who need it the most.  However if you do not research how much a charity actually spends on charitable work, a significant portion of your money could be going to administration costs to keep the charities' staff employed.

You should always therefore look at what the expense breakdown of the charity is

Charities will typically provide (somewhere on their website or promotional material) a breakdown of how their funds are spent.  You need to be comfortable with the level of their administration costs because even though they may have the most grand vision, if the money is not getting to the people they want to help then it is not doing any good.

Where can I find the expense breakdown?

There are several sources that you can use to find the expense breakdown
  1. The charity's promotional materials
    • Most charities will quite openly state what their expense breakdown is and what they spend their money on
    • If you cannot find it anywhere on the charities website or in their promotional materials then STAY AWAY.  All honest charities should be providing this publicly.  The last thing you want to be doing is handing your money over to a scam
    • This is probably the best way to check if you know what charity you want to donate to
  2. There are many sites on the Internet which summarises the expense breakdowns
    • The Internet is a great resource for seeing expenditure summaries
    • If you are not sure what charity you want to donate to there are many great websites which summarise what the charity does and what it spends it's money on
      • An example of a good site is for US based charities (this is particularly for searching for a charity based on an area you want to support)
    • Note that I would avoid sites that charge charities for a 'premium listing' but do little to provide the donors with information about the charity - in particular those that do little to describe and evaluate what the charity does and it's openness. 

What should I look out for in the expense breakdown?

There is no bright line when it comes to how much a charity should be spending on certain activities but you should be aware of how your money is being spent.  Areas to keep an eye on include
  1. Administration costs
    • These are the costs involved in actually running the charity including employing staff, accounting, compliance etc
  2. Fundraising costs
    • This one you need to keep a close eye one.  In order to get their name out in the public charities often spend a huge amount of money on fundraising awareness and other related costs. 
    • While there is an argument that if they get their name out there more donations will flow in, this is little comfort to those donors who are already giving their money to the charity in the expectation that it will actually be used to help people

Awareness is the key in this area.  You need to be informed and aware before you give your money over to any charity (no matter how large or reputable they are or appear to be).  There are plenty of resources out there and I encourage you to look around before you commit to a charity.


  1. 6 or 7 years ago just before Christmas I saw an ad for a charity saying a $2. donation would help a family have a nicer Christmas dinner. It sounded good so I donated $75. Within a week I was being phoned and mailed request from every charity you can think of and some you can't. This is still going on. My record is 7 letters and 6 phone calls in one day. One letter was from a charity in England that had a school for autistic children. It's got to the point were I write take me off your list and mail it back with no stamp. The phone calls I just hang up. I still give to some charities but I want to be the one who decides who and when. I've also looked up some of the charities overhead cost and some of the CEOs are making millions.

    1. Hi Halidom - that sounds terrible! I confess I have never had issues like that. I get called maybe twice a year from the charities I donate to but I have been lucky that my name has never been sold onto lists like yours obviously has.

      Many years ago I worked in a call centre for a reasonably well known charity and I found out that they would buy these lists of other groups that would sell them. Whenever you fill out those 'free competition' forms at supermarkets your are typically giving them the right to on sell your contact details.

      I do the same as you when it comes to cold call charities and I agree that the expenses of some of them are abhorrent!

  2. Notice you're not a fan of Australian Charity Guide

    They were recommended to me as a community directory. Looks suss. $399 for a "featured" entry - no news or activity on their site, the domain it listed to a private individual at a residential address with little information available

    Know anything else?

    1. Hi, unfortunately not. That was just a site I came across while looking for good charity directories which provided information to potential donors.

      I would have no real problem with a site charging charities to be assessed and 'rated' in much the same way that S&P or Moodys rate companies but to pay to get prominent placement and no independent assessment seems useless to me which is the problem I had with it.

    2. Thanks for that. I was concerned at the lack of information about the site owners, a general lack of activity on the site, once I checked through Internet Archives I found a number of founding featured charities such as VicDeaf and ABCR (Australian Breast Cancer Research) had left.

      I've tried registered and their sign in was broken. Still awaiting reply.