Philanthropy and Charities

According to Reuters, Americans give around $300 billion to charity each year. The vast majority of this total is spent on domestic causes; less than 10% is for foreign aid, according to Wikipedia.

Philanthropy has become a major industry, and the Chronicle of Philanthropy reports that there are well over one million charities in the US. Most of us experience a tidal wave of donor appeals in our mailboxes each holiday season, and indeed throughout the year.

Where does all this money go? Most of it seems to go to good causes. Charity Navigator has become the country’s most well-established watchdog of the philanthropy industry, and reports what fraction of the donations received at a charity goes to fund programs rather than overhead. Most (but not all) large charities appear to be well run, and transparency has increased somewhat in recent years. That’s a good thing, because the size of these charities is massive: the US has five charities with billion dollar budgets, and at twenty charities, CEO pay tops $1 million.

Despite the information that is publicly available, and despite the best intentions of the philanthropy industry, donors can still be faced with considerable misgivings about the efficacy of their charitable giving. The internet is our best friend in these cases, with Charity Navigator, similar data compilation efforts, and the charities themselves providing substantial information, including the publicly available IRS 990 tax returns that charities must complete each year detailing receipts and expenses.

But there is another problem as well: what if a donor has a specific goal in mind, but there is no charity out there whose mission matches that goal sufficiently, while also winning the donor’s trust? It is easy for donor inertia to take over in such a case, and donors may postpone their charitable giving or redirect to other causes and agencies.

The Children’s Prize offers $1 million to save the lives of children age 5 and under, anywhere in the world. It is a very specific objective that has been advanced by the donor, and the prize is structured as a peer-to-peer contest that, to a large extent, bypasses the need for a large charitable organization to act as an intermediary between the donor and his or her goal. Furthermore, the prize is structured as a contest to increase the quality and efficacy of the proposed pathways toward meeting the donor’s goal. This competitive aspect also differentiates the Prize from most conventional charity.

The Children’s Prize represents a drop in the bucket when compared with the $300 billion in US total charitable giving, but this model could empower both donors and recipients, and thereby overcome some of the donor inertia and uncertainty that the philanthropy industry, as it is now structured, must contend with.