Conduct ‘Due-Diligence’ Research Before Giving to a Charity

By WEALTH Magazine Staff | Print This Article

If you’ve visited us at WEALTH magazine before or seen our editorial products online, you likely know that we are big advocates of including charitable donations in your investment plan.

Donating to effective charities can make a significant difference in the world around us and in the lives of those less fortunate. And giving some of your money to nonprofit causes allows your legacy to have an impact far beyond your own family.

But we’ve also stressed that donors should do their homework before deciding how to invest in charities.And judging by a new report, the need for such research has never been greater.

The December 2011“Money for Good II” donor survey found that only one-third said they conduct research on an organization before making a contribution. Of the one-third of respondents who do research prior to donating, over 70 percent said they spent less than one hour conducting it.

The survey, conducted by strategy consulting firm Hope Consulting, also showed that when donors do research, they tend to focus on an organization’s legitimacy and reputation rather than on whether or not the organization is “better at solving social issues.”

In short, the majority of donors do not actually examine how the organizations they fund make a difference in their areas of focus.

Why would you want to invest your money in something that wasn’t effective?

You would never think of investing in a company that couldn’t compete. Why would you do that very thing in your charitable giving?

Conducting research on the possible recipients of your giving insures that your dollar goes as far as possible. And doing your homework can reveal whether your chosen charity really does the work you thought it did.

So confirm that the charity really is a nonprofit. Ask to see its federal 990 forms and its annual report. If you are denied access to these documents, that probably means you need to find another charity.

There are plenty of Internet tools to help you do background work on charities. These include: charitynavigator.com, guidestar.org and the Better Business Bureau for starters. Also, check with your state attorney general’s office for tips on finding good charities.

In short, treat your charitable giving just as you would any other investment. Do the research, and make the best decisions.

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