Sense over cents

Most people reading this article will have made a charitable donation at least once in their lives. Some 80.8% of Australians- that’s 14.9 million of us- contributed a total of $12.5 billion to charities and not-for-profits in 2015-16 alone [1].

Think about the last donation you made to charity. Can you say with absolute certainty, that your donation went where you think it did? How do you know that your donation had the kind of impact you want it to have on the world? Did you check?

We like to think that donating to charity is a laudable act, and it is. But whether our donations are having an impact is another story entirely.

Many projects pursued by well-meaning charities just aren’t effective.

For example, funding scholarships for children to go to school has mixed results in improving school attendance. Deworming programs, however, consistently reduce school absenteeism, improving a child’s ability to become literate and otherwise benefit from school [2] . While both projects may seem equally as worthy, perhaps our money is better spent directed towards deworming.

Another case-in-point is the 60,000 water pumps installed in sub-Saharan Africa every year [3].
It is estimated that up to 40% do not work at any one time, and are often abandoned and fall into disuse because of a lack of local parts and skills to fix them [4]. This represents a loss of investment of more than $1.2 billion over the past 20 years. [5] And yet we continue to fund programs such as these, trusting that our money will make a difference.

In most areas of life, we understand that it’s important to base our decisions on evidence and reason rather than guesswork or gut instinct. When we invest money, we try to get as much information as we can about our options, and determine which investment will give us the greatest return.

Yet when it comes to donating to charity, we often lose those standards. Studies show that internal satisfaction- a ‘warm glow’ or ‘fuzzy feeling’- is in fact a core economic motivation for giving. [6] That is not to say it is the only reason for giving, but it does suggest why charities implore us to donate by appealing to our compassion, rather than our common sense.

This process is a self-reinforcing cycle. Charities know how to convince us to give and don’t have to be particularly competitive. They aren’t forced by the market to ensure that what they are doing is effective, let alone prove it.

The solution is two- fold. First, we need to start asking the right question, what impact is my money having? And secondly, charities need to start sharing data about their performance.

GiveWell is an organisation that conducts investigations into the impact of charities, based on transparency and funding. The information provided helps donors to make decisions about where to direct their money on the basis of an independent analysis of their impact.

An empirical approach to choosing which charity to donate to may seem harshly utilitarian. Donors often have personal attachments to the organisations they donate to (if not a guilty conscience). We have a moral imperative however, to ensure that we’re not funding a perpetually broken cycle of aid.

Charities no doubt pursue worthy causes. But effective charities can be the difference between transforming lives and accomplishing nothing. The good intentions of donors are all too often squandered because people use their money in ways that do comparatively little good.

Perhaps the world would be a better place if we were as tough-minded about how we donate money, as how we make it.

References

[1] Baker, C. (2017) How Australians are giving to charity- Analysis for The Conversation by Dr Christopher Baker. http://www.swinburne.edu.au/news/latest-news/2017/03/how-australians-are-giving-to-charity.php.

[2] Glewwe, P and Kremer, K. (2006) Schools, teachers and education outcomes in developing countries. Handbook of economic of education, volume 2, eds. Eric Hanushek and Finis Welch, 946-1012, Elseiver, Amsterdam.

[3] GiveWell. (2015) Combination Deworming (Mass Drug Administration Targeting Both Schistosmiasis and Soil- Transmitted Helminths). http://www.givewell.org/international/technical/programs/deworming#top

[4] Carter, R.C., Harvey,, E. & Casey, V. (2010) User financing of rural handpump water services. IRC Symposium 2010- Pumps, Pipes and Promises. http://www.ircwash.org/sites/default/files/Carter-2010-User.pdf

[5] Bonsor, H.C., Oates, N., Chilton, P.J., Carter, R.C., Casey, R.C., MacDonald, A.M., Calow, R., Alowo, R., Wilson, P., Tumutungire, M. & Bennie, M. (2014) A Hidden Crisis: strengthening the evidence base on the sustainability of rural groundwater supplies- results form a pilot study in Uganda. https://upgro.files.wordpress.com/2014/03/hidden_crisis_final_report_v7.pdf

[6] Andreoni, J. (1993) An experimental test of the public-goods crowding-out hypothesis. American Economic Review 83: 1317–27.