It’s the Season of Giving. How to Choose Charities Wisely

The Trump Foundation on Tuesday agreed to shut down amid allegations it used charitable donations for personal gain.

What strategies can the average person use to evaluate whether dollars set aside to do good are actually working? Dean Karlan, professor of economics and finance at Northwestern University’s Kellogg School of Management has devoted his life to applying evidence-based research to evaluating what works and what doesn’t when it comes to helping lift people out of poverty. He’s the founder of the nonprofit Innovations for Poverty Action and advises donors and institutions on the best use of their charitable dollars.

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We asked Karlan how he got interested in this pursuit.

“After graduating from college, I intended to spend a summer working in El Salvador with a microlending organization,” he said. “It turned into a year. These small loans were intended to help lift people out of poverty, but I found there was little data to prove that they were indeed working. I wanted to know whether the loans were actually changing their lives. I then went and got my MBA from the University of Chicago, thinking I’d be headed to Wall Street, but instead I continued to be interested in the topic of how to evaluate if social programs and charitable programs are actually working.

“I went on to get my Ph.D. in economics from MIT and in 2002 I started a nonprofit out of my living room, dedicated to creating high-quality randomized evaluations of global anti-poverty programs. Today, Innovations for Poverty Action has a $42 million budget, most of which goes directly into research. We’re now in 22 countries, but we’ve worked in 52 countries. We have some 500 permanent staff and have done almost 800 randomized evaluations of anti-poverty programs and initiatives. We apply rigorous economic theories and research to evaluating which global anti-poverty initiatives are working.”

Karlan’s tips for evaluating whether your charitable dollars are being used effectively:

1. Don’t evaluate a charity based on its overhead.

2. Don’t be swayed by marketing materials with moving heart-wrenching photographs. Let your heart motivate you, but use your mind to make the final decision.

3. Look for evidence of impact.

4. If you are wondering where your money will have the most impact, it’s likely in poorer, developing countries. People generally think charity begins at home, but a dollar will go a lot farther towards helping someone in a poorer country than in the U.S.

5. Don’t be afraid to give to large organizations. People often think that their charitable dollars will be better spent in smaller organizations, but that isn’t necessarily the case.

6. Email the charity for evidence of cost effectiveness. There is always a spot on their website where you can click if you have further questions. See if they respond, and if they are actively collecting data.

7. Consider giving to meta-charities. A meta-charity is a non-profit that evaluates and supports other charities. Innovations for Poverty Action is an example of a meta-charity.

Karlan recommends the organizations Give Well and The Life You Can Save as good resources for additional information about evaluating charities.