Being able to spot a charitable giving myth is an important step in maximizing your impact as a donor.
Here are 10 giving myths that you’ve likely heard, but will now have the knowledge to overcome.
Reality: Your charitable donations, no matter how small, are essential to the survival of nonprofits in your community. Having many different donors and funding sources gives a nonprofit credibility in the eyes of other donors, as well as stability. If one large source—a government grant, for example—suddenly stops, a nonprofit could be in trouble. But nonprofits have a better chance of succeeding if they have diverse sources of support—like you!
Reality: Evidence from multiple studies shows people are happier when they spend money on others rather than themselves. In one study, Harvard Business School professor Michael Norton gave envelopes of money to a group of volunteers. Half were instructed to spend the money on themselves; the other half on someone else. “People who spent money on other people got happier,” Norton learned. Another finding? The amount of money spent and type of purchase did not matter—people who gave $5 or $20 got the same “happiness” boost.
Reality: It is not just about money—philanthropists can contribute their time, money, and participation. In fact, the giving of non-monetary resources can be just as impactful. For example, board service and pro bono can help nonprofits grow in skills, resources, and capacity. Think holistically about how you can best serve the causes you care about, and do your research to match your skills with nonprofit needs.
Reality: Spending on things besides programs and direct services, including fundraising, is actually vital. Unfortunately, there is a longstanding misperception that effective nonprofits should limit spending on non-programmatic activities, sometimes called “overhead.” The reality? A nonprofit cannot grow and become more effective if it does not invest in itself through activities like fundraising. Many donors seek out nonprofits with effective and efficient programs that have the potential to grow and scale—and they look for impact metrics from nonprofits to back it up. All of that is made possible with investments that help keep the lights on and build up infrastructure and operations.
As author Dan Pallotta points out in a TED talk, fundraising makes the whole pie bigger for nonprofits, which need more—not less—resources to solve the world’s most complex problems. “The next time you’re looking at a nonprofit, don’t ask about the rate of their overhead,” Pallotta advises. “Ask about the scale of their dreams, their Apple-, Google-, Amazon-scale dreams, how they measure their progress toward those dreams, and what resources they need to make them come true, regardless of what the overhead is. Who cares what the overhead is if these problems are actually getting solved?”
Reality: Fair and competitive staff compensation helps nonprofits recruit and retain top talent. Nonprofits work on complicated social problems; they need the very best professionals on staff to solve them. But not everything can be accomplished on a part-time or voluntary basis, especially if a nonprofit is serving vulnerable populations with specialized needs or addressing entrenched community issues with many nuances. Also, some of the very best nonprofits employ people from the community they serve. They would be doing a disservice to their mission if they compensated them poorly. Fair compensation also helps nonprofits keep their staff. Nearly one in five nonprofit employees leave their jobs each year, and their expertise can leave with them.
Reality: Often, you can make just as much of an impact by supporting or collaborating with existing, like-minded organizations that want to scale up or build their capacity. The decision to start a nonprofit should not be made lightly. For one, it takes time to incorporate at the state level, register for 501(c)(3) status with the IRS, and build a strong board of directors. You would also need a sustainable business plan, financial acumen, and issue area knowledge, so this is not the right option for everyone.
Reality: Scams, misuse of funds, and other stories of immorality may make the news, but this poor behavior is an anomaly among the nearly 2 million nonprofits that operate in the US If you are worried about giving to a nonprofit, look for an independent evaluation from a service like Charity Navigator and Better Business Bureau for peace of mind. If an evaluation is not available, talk to staff at the nonprofit, do your own research, or get more involved as a volunteer to gain confidence before giving.
Reality: Nonprofits actually can make a profit (and some aim for a small amount of profitability to ensure sustainability). The key difference between a nonprofit and a for-profit company is that a nonprofit cannot give its profits to a private individual (except as compensation to those employed by or providing services to the organization). Because of their tax-exempt status, nonprofits must serve the public rather than the interests of a private owner or shareholder. Did you know that nonprofit revenue can include more than just donations? In fact, only about 10% of the nonprofit sector’s overall revenue comes from charitable giving. The largest source of nonprofits’ funds comes from fees collected from their service recipients such as a hospital’s patients, a university’s students, or a community group’s members. Rather than pocketing those as profit, nonprofits must invest that revenue into providing more services.
Reality: The majority of nonprofits in the US are small, grassroots organizations with annual budgets of $1 million or less. In fact, about one-fifth of nonprofits have an annual budget of $50,000 or less! The median online monthly gift is just $23. Your monetary support makes a real difference! For small nonprofits without steady program revenue—such as patient or tuition fees—to fall back on, donations from caring individuals are a life line.
Reality: Nonprofits can and do lobby on behalf of their constituents for all kinds of causes—from environmental conservation, to the arts, to education policy. Lobbying, or attempting to influence legislation and policies, can be an effective long-term strategy to advocate for or against change on behalf of a community. A registered 501(c)(3) organization can typically spend up to one-fifth of its annual budget on lobbying.
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