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Making your generosity pay
Giving is up, but public confidence in charities is down. How to ensure your money is used wisely?
December 30, 2004: 3:36 PM EST
By Penelope Wang, MONEY Magazine

NEW YORK (MONEY Magazine) - For Michael and Martha Hogan, giving to charity is not just a tradition -- it's a passion. The St. Louis couple, both 51, donate regularly to some two dozen nonprofits, ranging from major groups like the United Way and the National Kidney Foundation to the lesser-known Small World Adoption Foundation, which helped them adopt the youngest of their four children.

"The charities that get most of our time and money are the ones we're familiar with and where we see the most need," says Michael, an executive at a scientific-research company. But, he adds, "I'm a total sucker when someone asks me for a small amount."

Case in point: Last year Hogan was approached in a Wal-Mart parking lot by a man selling raffle tickets to support a program to teach inner-city kids to play golf.

"It was a steaming-hot day, and he looked like a regular guy with a job and other things to do," says Hogan. "But he was out there stumping for his cause." The man asked for a $5 donation. Hogan gave him $100, even though he'd never heard of the charity before.

"I just wanted to help him out," says Hogan. "It's not really rational -- it's just something that touches your heart."

As that Wal-Mart moment shows, when it comes to charitable giving, we often let our hearts rule our heads. As a result, we frequently wind up having second thoughts about our giving: Did that donation really end up where it's needed most? Will this charity really use my money wisely?

A survey conducted earlier this year by the Brookings Institution confirms the public's doubts: Nearly one out of three respondents expressed little or no confidence in charitable groups, and only 11 percent said they believe that charities do a very good job of spending their money wisely.

Fact is, people have good reason to be wary. In recent years several high-profile scandals have rocked the charitable world. Most recently, the American Red Cross was taken sharply to task over its plans (later dropped) to use some Sept. 11 funds for other purposes, while the Nature Conservancy was criticized for failing to disclose loans to its executives.

High salaries awarded to the heads of some nonprofits have also drawn fire, as compensation for the chief executives of the nation's biggest charities grew at a rate nearly double that of inflation last year. The IRS is beefing up scrutiny of compensation practices among tax-exempt organizations, and the Senate Finance Committee held hearings on charity accountability last summer. But at this time at least, no new legislation seems likely.

Despite the cloud cast by recent events, Americans continue to give generously. Last year charitable donations rose 2.8 percent to $241 billion, which represents 2.2 percent of disposable personal income, according to Giving USA, an annual philanthropy report from the American Association of Fundraising Counsel. That's consistent with the historical rate of individual giving, which for the past 40 years has hovered between 1.8 and 2.6 percent of disposable personal income.

The question, then, is not whether to give, but how to make sure the dollars you do give really count. These four steps will help ensure that your donations go to the causes that matter most to you and that will use your money wisely.

Next: Find your motivation »  Top of page

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