If you turn your television on tonight, the chance that you will stumble upon an advert which asks you to donate “just £X a month” to a specific cause is highly likely.
There are currently around 168,000 charities in the UK which exist to support (for example) developments in finding cures for multiple diseases, for the prevention of child abuse and neglect, or to improve welfare conditions of those less fortunate.
The total cumulative revenue of these charities in the United Kingdom is around £50bn a year (averaging just under £1,000 per person per year).
Why Do We Donate to Charity?
Charities are advertised as Non-Profit Organisations which aim to serve public interest in social well-being.
It can be perceived as a form of beneficial wealth distribution from those who have excess disposable income, to those who would value the money the most.
From the outset, it seems as though donating to charity is something which we should all do regularly to benefit the greater good; however being mindful about what charities will be doing with your donations is recommended.
Why Should We Be Mindful About our Donations?
Despite the idea that all charities operate with achieving the greater good in mind, a recent report described how bosses at some of the most well-known, and donated-to charities were receiving incredible sums of money for wages to run these “philanthropic” organisations.
Data on CEO wages in charities is not easy to find, but in 2015, the Chief Executive of the charity “Save the Children” earned £234,000 in a single year. This was seemingly excessive amount considering that their website claims that just a £3 donation could pay for life saving treatment of eight children.
After running a quick calculation, if the CEO of Save the Children took twice the average wage in the UK as her salary (£53,000), freeing up an extra £181,000 to spend on “Saving the Children”, this would have provided life-saving treatment for around 480,000 children, which makes me question how benevolent the CEO actually was.
Furthermore, the birth control charity “Marie Stopes International” paid their highest earner £290,000 in 2015, with 10 others on six figure salaries.
The UK doesn’t even show the worst of it, with Craig B Thompson of the ‘Memorial Sloan Kettering Cancer Center’ taking an eye watering $5.3m!
It is perhaps due to the high wages of top charity bosses that the number of charities operating, and competing for your donations seems to be rising every year.
ho wouldn’t want to be earning sums in excess of the salary of the Prime Minister, whilst also taking plaudits as driving positive change in a well-known issue?
How Do We Choose a Charity to Donate to?
As a rule of thumb when deciding which charity to choose, it is wise to research how much is spent on overheads, admin and other factors which don’t include actual spending on mitigating or solving the problem in the first place.
Just because a charity takes in large sums in donations, and is well known (usually due to spending more on advertising) doesn’t mean that they are going to be the best place for you to part with your money, and the best organisation to deal with the problem that they claim to support.
What Motivates Us to Give?
There are three economic theories which can explain our behaviour when considering charitable donations:
1) Pure Altruism
This theory is based on the idea that an individual will have an expectation of the right amount of money a charity should receive in donations from all sources.
If the individual perceives that the charity should raise £1,000 from donations, and they have only raised £900, the donor will then give in order to fulfil or help meet the £1,000 target.
If the £1,000 minimum has already been reached, then the donor is likely to not donate at all.
2) Warm Glow
The second theory is based on the feeling that a donor gets when giving money to charity, even if the donation is anonymous.
The simple act of donating money can provide a positive emotional feeling gained from helping others (also known as the “helper’s high”).
There is research which demonstrates that donating to charity activates the reward centres in the brain which provides a physiological explanation for this theory.
3) Social Recognition
Some charities label their donors with titles based on the amount they donate; titles such as “sponsor” or “patron” are awarded to those who donate large sums of money which is disclosed.
The internal satisfaction received by the donor for achieving one of these prestigious titles is partially linked to the fact that they are able to signal their wealth publically.
Perhaps the most interesting statistic related to charitable giving is around which demographics are most likely to donate to charities.
By plotting a graph which measures how much people donate relative to their income, we see a U-shaped curve which indicates that the lowest and highest earners donate the larger portion of their incomes relative to those on middle incomes.
Perhaps this can be explained by saying that those on lower incomes are more likely donate as they are sensitive to hardship and difficulties, and the higher earners donate due to greater amounts of disposable income, and due to social recognition from others.
I believe that the majority of causes which are advertised to us are easily justifiable and legitimate reasons for us to part with our money (and this blog post is not to provide justification against any form of charitable donation from yourselves).
However, however we need to be wary when selecting the correct charity for our donations, so as to maximise the value for money we receive when attempting to improve the welfare of those who need it most, regardless of the personal reason for us donating in the first place.