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Charities: tough choices

 In Decision-making, Insights, Not for profit

I recently watched an interesting TED talk on redefining altruism. The key point was the sheer insanity of people in developed countries complaining about the economy and their biggest worry is they can’t upgrade their flatscreen TV. While for the sake of 3 cappuccinos to you, a charity can save someone’s life, or their eyesight, or feed a family for a month. If you actually stop to think about this it is quite shocking how little empathy we have for people who are “out of sight, out of mind”. How to overcome this?

If you are an individual, my advice is to set an annual charity strategy for yourself. This involves one big decision each year, but means you can lose a hundred small decisions across the year, every time you are approached or called by a new charity. I have done this before, and it works as follows. You decide upfront how much you are willing to give to charity across the year, keeping the tax rebate in mind so you can effectively double what you give (for higher income earners). Then pick 1-2 charities that you will support. You are better off giving a large amount to a small number of charities than spreading it too thin. Read their annual reports to see if they have been achieving their stated aims. Then engage with them across the year to see if you can help in non-financial ways. This latter route is surprisingly difficult. Many charities prefer you just to give money which is much easier for them to do something with than a new person who needs vetting, training and keeping an eye on.

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If you are a charity, here is some research on how to increase donations…

In terms of generating donations, it is reliably proven that individual stories are more powerful than statistics. Experiments show much larger donations, up to double, for images and a story of an individual child suffering, than for statistics such as “200,000 people are at risk of starvation.” The authors concluded that charities should focus on solely the emotional appeal, and ignore the rational appeal altogether.

The tactic of the charity giving a small present to get a bigger one back (the free teddy bear / pen / flower) has a fairly long history, going back to Hare Krishna devotees and is very common in Australia. However a recent paper questioned whether these gifts sometimes decrease donations as it reframes the donation from a social cause to a financial exchange, and as Dan Ariely and others have pointed out, as soon as you change the frame from social norms to market norms, people become far more selfish. They also start to use the value of the free teddy as a reference point for the exchange, rather than the issue in question e.g. funding cancer research.

Here are some other effects which are researched to increase donations:

  • Information on how much others donate
  • Suggested donation amounts
  • The ability to pay by credit card
  • The attractiveness of the person requesting a donation (sad but true)

It seems to me that the fundraising function of any charity should have a strong grasp on psychology and behavioural economics.

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Ironically having just given you advice for the individual and the charity, you will notice that they conflict. If the individual has a set annual charity strategy it becomes a bit harder to elicit extra money out of them. I think this conflict points to the complex emotional, financial and even philosophical relationships charities have with their donors, who are somewhere on a scale between friends and revenue streams.

Decisions about charities are some of the most emotionally driven of all. We all need to understand this psychology to deliver better outcomes for the people that really matter, the people in need. After all, anyone who just bought a new $1000 handbag could have saved 50 people’s eyesight instead and that, in a rational and empathetic world, makes no sense at all.

Posted by Rob Pyne