Tips for Leveraging Your Charitable Returns

The pitchmen for all those charities must drink a lot of coffee: everything they ask for is expressed in terms of cups of the cherished brew: "the price of a cup of coffee a day." "Just a cup a day for a month." "Give up the latte for a few months and you can change this child's life." It's doubtful that most of their revenue is displaced from Starbuck's coffers, however: people donate dollars that would have gone to pay off debt, or into investments, or towards college or a new car. It's natural, and rational, to expect your money to work for you, either by producing a capital appreciation, or by eliminating your current debt, or by purchasing a tangible asset like a shirt or a television or a cup of coffee.

It is an admirable and virtuous thing to want to give a portion of your income to charitable (that is, non-selfish) causes. You may have a religious or spiritual mandate to do so, or you may just do it because it feels good. Regardless, all charities are not created equal. Realize that it is very possible and perhaps fairly common for a donated dollar to do more harm than good. Consider the proverbial gift of a fish to a man: what if the gift prevents the man from catching his own fish? There are many who protect the practice of making high-interest loans to developing countries, dictating what the loans be spent for, collecting payments until the inevitable default, and then leaving the country with infrastructure it can't support, a depleted economy, and a dinged-up credit score. Likewise, an often small percentage of your dollar reaches it's intended recipient after the various overhead expenses -- corporate salaries, advertising expenses, and even graft and corruption -- are taken into account. An investment-worthy mutual fun might absorb a half-percent or so of your input; some of the more popular charities can take up to 85%!

So how do you research a potential avenue for charitable giving? The first step is to se whether your charity has 501(C)(3) status with the IRS. This is actually a fairly low bar, but a hurdle that you probably want to clear. (Not always, though: you may find that the best investment of your time and money is mentoring and/or sponsoring a young person getting started in your profession, for example.) If you do decide to look for an established charity, the next step is to examine annual reports. What percent of your contribution will make a difference, and is it the sort of difference you want to make? You may disagree with the charity about the efficacy of some of their programs. Do they do a lot of public education campaigns? Subsidize certain expenses for the needy? Concentrate on one particular asset, like immunizations or college scholarships? How can you maximize your gift? Try giving directly through the company's web site or get a direct mailing address. Forgo the "thank you" incentive if you choose. If you like one of the indirect recipients that your charity sponsors, eliminate the middleman and write your check directly.

Finally, don't underestimate the impact of a well-timed loan, especially a micro-credit business loan. Web sites like kiva.org let you search for entrepreneurs around the world who need a few hundred dollars to take their business to the next level. Your small donation could help a family change their situation forever, having a much greater impact than if it had stayed in your bank account. The best part is that your money comes back to you when the loan is repaid, leaving you situated to choose the next recipient of your largesse.

That's certainly worth more than a few cups of coffee.