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Philanthropy

Three Steps to More Informed Giving

What we in the philanthropic sector can do to increase informed giving by donors?

Much of the recent writing on effective philanthropy suggests that donors need to do more research on charities.

We couldn’t agree more—additional research by donors is critical to creating a more effective philanthropic sector, and ultimately to bettering our world. But we also feel that much of the current rhetoric fails to offer fact-based perspectives on what we in the philanthropic sector can do to increase informed giving by donors.

It is true that donors rarely research today. In a 2010 study of 4,000 donors, “Money for Good,” Hope Consulting found that 9 out of 10 donors say they care about nonprofit performance, but only 3 out of 10 donors actually research nonprofits and only 3 out of 100 actively take steps to ensure they are giving money to highest-performing nonprofits.

At GuideStar and Hope Consulting, we want to change that equation and get more money to higher-performing nonprofits. Last year, we surveyed more than 5,000 individuals, along with hundreds of advisors and foundation grantmakers, to learn more about their information needs. This study, “Money for Good II,” found that the primary reasons that individual donors do not research nonprofits are a) because they are familiar with their chosen charities and are inclined to give to the same organizations year after year, and b) because new charities they consider are already well-known, vetted organizations. Further, donors generally believe their charities are doing a good job and are motivated by many factors aside from supporting “the best nonprofit.” All of this makes it difficult to change their research behaviors.

However, the research also showed that there are constructive actions that the philanthropic sector can take to encourage more informed giving.

First, field-builders and information providers can focus on providing information about nonprofits in sectors that donors do tend to research. These include nonprofits working internationally, including international disaster relief work, and those working on health, education, poverty, and children’s issues.

Second, we also learned how nonprofits can best engage donors. We found that before funding an organization, donors want to get the full picture—the nonprofit’s mission, legitimacy, financials, and, most importantly, impact. The vast majority of donors, advisers, and grantmakers also prefer to see more comprehensive ratings (something akin to Consumer Reports) to “simple” ratings such as badges and seals of approval—preferably provided by third-party portals. Few donors know that these portals exist today, although 53 percent of them want to use such sites.

Third, nonprofits need to get information to donors. Donors don’t “shop” for nonprofits. When they research, it is often to validate whether an organization is legitimate and “won’t waste their money.” However, donors who do not research today say that they would be encouraged to change their giving behaviors if respected organizations issued ratings of nonprofits by sector, or if they saw a media report on an organization they support or are considering supporting. Nonprofits can also help themselves by sharing information on their impact and effectiveness on their website, third-party portals, and solicitations.

These research findings present a wonderful opportunity for the philanthropic community to better connect with donors by providing more—and better—information about their organizations. At the same time, it’s an opportunity to encourage donors to do meaningful research and ultimately fund the most impactful nonprofits

We know this won’t happen overnight. For many individuals, the emotional connection to a cause is what matters most. But we estimate that it is possible to influence about 5 percent of donations each year, which could shift as much as $15 billion in charitable donations. That could make a significant difference in supporting the work of high-performing organizations.

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COMMENTS

  • savannah's avatar

    BY savannah

    ON March 21, 2012 10:03 AM

    I’d be interested in the detail of your research. When you say ‘the primary reasons that individual donors do not research nonprofits’, do you mean ‘the primary reasons that individual donors give for why they do not research nonprofits’, or are those the reasons you’ve surmised from some counterfactual / observation analysis which you’ve done? It’s well-known in consumer research (of which this is an example) that you can’t just ask people why they do or don’t do things: we typically don’t know what drives our behaviour, but we know very well what we think a researcher wants to hear, or what we ought to say. So, in the jargon, reported preferences & actions are very different to revealed preferences & actions.

    My hunch is that the primary reason that donors don’t research nonprofits is that they don’t sense a need to. For all the chatter about impact, we (the philanthro-industry) talk very little about bad charities, and therefore haven’t opened up in the donor’s mind the notion that there are geniunely good options and geniunely bad options.  People research companies into which to invest because they know there are duds & stars: we need to be much more explicit about the existence of duds & stars in the nonprofit world too. I’ve written more about this:
    http://giving-evidence.com/2012/01/28/charity-failure/

    I’m just publishing a guide for donors about giving well, which starts with a story of several charities, all of which seem sensible. Turns out that one is ten times better than another, and one is fully 250 times better. I suspect that we will only persuade donors to research impact if we have stories about how it actually matters. http://www.giving-evidence.com/book

    - Caroline

  • BY Greg Ulrich

    ON March 27, 2012 10:38 AM

    Thanks for the comment, Caroline. Yes, looking only at reported preferences is certainly insufficient. I’d be happy to discuss our methodologies in greater detail, but in short we look at past behaviors and actions (vs. stated preferences), and when we do ask about “what if” scenarios, we use a variety of techniques including forced trade-offs, forced rankings, and attitude certainty to help ensure the responses are predictive of future behavior.

    With all that said, yes, I agree that people do not research charities because they don’t think they need to do so. While it was outside the scope of the piece above, we find that donors believe that the charities to whom they give do a very good job (regardless of whether or not they have evidence about it - just like we all think our children are above average), implying that they don’t need to do research. And when donors are looking at a new organization, they are for the most part trying to ensure that it is a “good enough” organization that won’t waste their money. Many assume that large, well-known organizations are sufficiently trustworthy, so again, they don’t feel the need to do more digging.

    Changing these behaviors is indeed going to be challenging. It will certainly be critical to bring transparency around impact to the space - highlighting which organizations are doing a great job, and, as you state, which are not. We are currently engaging in a series of online tests to see if people give more when they know an organization is a high performer - or less when they see that an organization is a poor performer. We hope to share the results of that research later this year.

    For a more elaborate description of the work we reference above, please see http://www.guidestar.org/moneyforgood There. you will find a link to the “Money for Good II” research. The first Money for Good report can be found at http://hopeconsulting.us/money-for-good/

    Best,
    Greg Ulrich

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