An article in this week’s Chronicle of Philanthropy reports that 1 in 3 Americans lacks faith in charities, according to a new poll:

More than 80 percent said charities do a very good or somewhat good job helping people. But a significant number expressed concern about finances: A third said charities do a “not too good” or “not at all good” job spending money wisely; 41 percent said their leaders are paid too much.

Half said that in deciding where they will donate, it is very important for them to know that charities spend a low amount on salaries, administration, and fundraising; 34 percent said that was somewhat important.

And 35 percent said they had little or no confidence in charities.

So why are we so skeptical of charities – and is our skepticism warranted?

To some degree, charities have failed to earn donors’ trust because they haven’t been particularly good about rigorously evaluating and documenting their impacts.   Only in recent years has a more impact-oriented, evidenced-based ethos begun to permeate the nonprofit realm.  Transparent, rigorous data that allow us to draw conclusions about costs and outcomes are hard to come by.

Impact Is The Best Way To Measure Charity Effectiveness

While many charities need to step up their game in providing rigorous data on impacts, we also need to do a better job of educating people about the best ways to evaluate charities.  According to the poll, the most important factor people use to deciding whether to give to a charity is that it spends a low amount on salaries, administration, and fundraising.   Yes the ratio of administrative to program costs is a poor indicator of a charity’s quality.  That’s because outputs, not inputs, are what ultimately matter.

We wouldn’t decide whether to buy, say, a new smartphone based on how much money the company had spent on marketing or salaries.  Instead, we’d make our decision based on what the product could accomplish, in relation to its cost.  We should evaluate charities in the same way.

The Crisis In Charitable Giving

The Chronicle reports that only 13 percent of those polled thought that charities do a good job of spending money wisely.  This amounts to a crisis in philanthropic giving.  Americans give over $358 billion in charitable giving each year, yet have little faith in where their hard-earned money is going.

What we need is a revolution in the way we think about charity quality.  Charities need to be rigorously evaluated with an eye towards the measurable impact per dollar invested.  Consumers also need to be educated as to what to expect from a charity. It’s impact, not inputs, that matter.