Finding a cause where your dollar will go the farthest should not be an exercise in blind faith or second-guessing. "Apply the same rigor to your philanthropic efforts as you would to your financial investments," says Eric Kessler, founder of Arabella Advisors, a philanthropic-consulting firm that helps donors identify and support critical issues.
One reason to target your contributions carefully is that the sector of giving has splintered into enough subcategories that even retailers as varied as Apple and Barneys New York are building donations into the purchase of items they sell. It is not always obvious whether the promised percentage of proceeds really reaches their designated cause, and a growing number of people are realizing that charitable organizations are members of a largely unregulated industry.
"Philanthropists are responding by learning to apply the same principles that help them generate their wealth to finding meaningful ways to give back," says Kessler. He offers these five questions to ask a charity organization before committing any money to it:
How will my money be used?
What impact do you anticipate having?
How will you monitor and evaluate that impact?
Why is what you're doing unique?
What are your governance structures?
The firm's newly released list of high-impact giving opportunity identifies some of the most overlooked and underfunded issues and suggests several ways you can help the neediest.
Consider, for example, donating your money to a program teaching financial literacy to America's youth. A recent study concludes that youth debt has risen 55% since 1996, and 60% of preteens don't know the difference among cash, checks and credit cards.
Another worthy way to give back is contributing to a cause that supports first-generation college attendees. Research shows increasing first-generation college-graduation rates is a critical element in improving the financial health of American families.
Also on the list as some of the most effective programs are those that combat poverty through access to microcredit loans, improve energy efficiency in low-income communities and enhance trust-building to prevent violent conflicts.
Just remember to treat any contribution you make as an investment: talk to the charitable organization's staff, set expectations and get personal updates. According to Kessler, not only is it becoming more acceptable to ask for this kind of information, it's actually appreciated by the organization.
By Marshall Loeb