It's not what you tell them it's the way that you tell them...
According to a leading economist, donors bombarded with fact and figures about impact may actually be less inclined to give.
Sir Howard Davies, former director of the London School of Economics and patron of Pro Bono Economics, made the claim to an audience of economists and charities in his lecture entitled ‘Why do people give their money away and how can we stop them acting so irrationally?’ at PricewaterhouseCooper’s London Bridge offices on February 7th.
He said that too much emphasis on explaining a charity can put people into a “deliberative state” in which they are less likely to be generous. It can lead to ‘drop in the bucket’ syndrome when donors feel their donation can make little difference, he said.
However, Caroline Fiennes, author of soon to be published It ain't what you give, it's the way that you give it, a guide to making charitable donations that give results, says that there is a huge appetite among donors for evidence that shows the difference between good and bad charities and what they achieve.
She points to organisations such as Give Well in the US that rates charities based on performance and has seen giving to their recommended charities grow to $5.3m from $1.2m in the last few years.
“It shows donors are very interested in data on the best and worst charities. However, they need this information in a way that is easy to understand. It’s not that they do not want facts and figures, it’s that they do not want complexity.”
Fiennes cites Innovations for Poverty Action, (IPA) another US organisation that runs random control tests on different interventions to see which are most effective, as more evidence of donors wishing to understand impact.
"For example, in comparing programmes that address why children in India do not go to school, it identified that a dollar can be 25 times more effective in one programme than if invested in another. No donor I have spoken to hasn't understood that and been affected by that statistic.”
IPA has doubled its revenue in each of the last 8 years without a fundraising campaign. It has attracted donations from individuals who have heard about the work they are doing in promoting effective organisations. Fiennes says this is more evidence that donors support organisations that help them tell good charities from the bad ones.
Fiennes says there is a role for grant-making philanthropic bodies in this. “They have the capacity and capability to help donors understand the issues by undertaking research and analysis “
Sir Howard’s lecture focussed on research that showed donors are often irrational and referenced research by Dr Beth Breeze at Kent University for Coutts. It found donors often made ‘taste-based’ rather than ‘needs-based’ decisions. It showed donors are heavily influenced by individuals’ personal and professional backgrounds, and to a lesser extent by their perception of a charity’s competence.
During the course of his lecture, the former chairman of the Financial Services Authority examined the economic and personal reasons driving charitable donations, which include the ‘warm glow’ hypothesis, wealth signalling and generosity signalling – all factors motivated by feelings, rather than cognitive analysis.
Sir Howard also examined the relationship between tax rates and giving behaviour, noting that in the UK, Mrs Thatcher’s hope that donations would increase with a drop in marginal tax rates had not materialised.
Noting the poor performance of British donors compared with American philanthropists - Brits give less than half as much of their income to charity, but are more generous than mainland Europeans - Sir Howard pointed to analysis from Charities Aid Foundation which suggests that donations as a proportion of GDP are lower in countries with higher personal tax levels.
He also said that, typically, Americans have a low view of the state’s capacity to act, are optimistic about the ability of individuals to solve social problems, and are less inclined to bequeath their entire estates to their families.
Concluding that giving behaviour is personal, and often quirky, Sir Howard said “It cannot supplant the role of the State in correcting systemic failures or providing robust safety nets for those whom the market, perhaps temporarily, leaves behind”.
But he said it can allow charities, of all kinds, to be “more imaginative and entrepreneurial, taking risks with new ideas. That is something which government funding will rarely support, for understandable reasons. So the ideal outcome is not, I think, for the State to subcontract its social obligations to the third sector, but to encourage a mixed economy of funding, with private funding supplementing the core, and doing so in a way which encourages innovation and ambition”.
The full transcript of his lecture is available on the Pro Bono Economics website.
More information on Caroline Fiennes book It ain't what you give, it's the way that you give it is available here.