Dean Karlan New Haven – The holiday season is a time of charitable giving. For many, it is also a period of indulgence ahead of the diet season, when we wonder why we failed to rein in our impulses. During this holiday season, we would be wise to use what we know about successful dieting to inform our charitable giving. As with eating, when it comes to fulfilling our natural desire to help other people, following our immediate impulses does not always yield the best result. Over the last decade, my colleagues and I at Innovations for Poverty Action have identified some of the best-performing non-profit organizations around the world and researched the most effective ways to give. Here are four things I have learned about how to get the most out of your charitable donations. First, follow your head, not just your heart. Do not accept uplifting anecdotes as evidence, or be swayed by glossy charity gift catalogs. Celebrity endorsements are like celebrity fad diets – good for the marketing department, but not necessarily an indication of a smart choice. For example, giving textbooks to a child in a poor country like Kenya might seem like a good idea. But research shows that textbooks primarily help children who are already doing well. A better use of your money would be to sponsor programs like Pratham’s Read India, which pairs children with volunteer tutors. Such programs help kids more – especially those at the bottom of the class who need the most support. We know this because Pratham is among the growing number of organizations that rigorously evaluate the effectiveness of their work. Next, it is important to know which numbers matter. How much a charity spends on administrative expenses is an easily available figure. Unfortunately, it tells you nothing about the effectiveness of what the charity is doing. Keep your eye on what really matters: the final impact on the world. When I compared the effectiveness ratings and overhead expenses of 293 charities, I found that the more effective charities actually had higher expenses. I suggest ignoring administrative expenses unless they are over 30%. After reviewing 55,000 charities’ tax returns, I found that few organizations spend above this amount; if they do, it could be a sign of potential fraud. Your third step should be to craft a charity “investment portfolio” that aligns with your goals. Consider carefully what you want to accomplish. Do you want to improve learning around the world? Are you trying to help eradicate malaria? There are charities that try to meet immediate needs and charities that address long-term problems – disease research is a good example – by devoting their resources to long-term solutions. The important thing is to treat your giving like an investment and concentrate on getting the greatest returns. Finally, make sure you commit to a financial plan – the simpler, the better. Many people neglect to save enough to give as much as they would like at the end of the year. Would you ideally like to donate 10% of your income? Five percent? Twenty percent? Calculate how much you are spending on charity this year. If it is lower than you would like, arrange to have your donations automatically withdrawn from your bank account every month. Doing so means not needing to remember; it also provides charities with a regular cash flow, helping them to plan more efficiently. My personal charity portfolio includes giving to organizations that help people immediately. These “short-term investments” include Evidence Action, Seva Mandir, Pratham, and Trickle-Up, organizations that either run proven programs or actively produce evidence showing them how best to operate. This year, the fifth group in this part of my portfolio is the International Rescue Committee, which is working in Sierra Leone and Liberia in the fight against Ebola. I allocate the remainder of my charitable funds to what I view as long-term investments: organizations researching the most effective approaches to aid, so that others can craft the best possible programs. (Full disclosure: I founded Innovations for Poverty Action, which does this kind of work.) This type of giving does not feel as immediately satisfying as addressing some urgent need. But with higher risks come higher rewards; in the long run, such giving is a good use of charitable funds. To return to the dieting analogy, whatever your most cherished cause, remember not to binge on an impulse. Use your head and, come January, you will have many reasons to feel better about yourself. The author is Professor of Economics at Yale University and founder of the non-profit Innovations for Poverty Action
