The Math of Charitable Giving

A recent post at one of our favorite Fall Through the Cracks Friday resources, the Freakonomics Blog, caught our eye this week – probably because of our ongoing Sandy Relief Campaign, where for every $1 you donate it can turn into up to $6!

Back to FTTCF – and a look at the economics of charitable giving. From the post:

As any 10-year-old can tell you, multiplication is commutative: 2 x $70 is the same as 70 x $2.

 

But not in charitable giving, it turns out. Making two donations of $70 is a good deal more valuable to charity than making 70 donations of $2.

 

The reason lies in the fixed transaction costs. Many charities (unavoidably) get charged a fee for each deposit into their bank account. So two large donations create only two dollops of that fee, whereas 70 smaller donations attract 70 dollops. That fee might be $0.25 per transaction. So if the $140 is given in two donations, less than 1 percent of the two donations gets lost in transit between the donor and the charity; if the $140 is given in 70 donations, 12.5 percent gets lost in transit; and if $140 were given in 140 donations of $1, fully 25 percent would fail to reach the charity. Of course, if you gave 1400 donations of only $0.25 each, nothing would reach the charity at all.

 

As a friendly reminder, 100% of donations to the PLUS Foundation for Sandy relief go to the food banks the Foundation is working with.