ProSpeak: What Americans Really Need to Know About Charities

The economic crisis has put nonprofit organizations in a double bind. On the one hand, social-service organizations like food banks, rescue missions and health clinics have seen demand for their services skyrocket as the unemployment rate rises and Americans see their savings, home values and retirement accounts plummet. Yet while the demand for nonprofit services is rising, in a severe economic downturn it's harder than ever to raise dollars to pay for those services.

Since Americans at all levels are trying to make the most of every dollar, what should people know before choosing to give money to a charity?

Throughout the worldwide investment community there is widespread agreement on the basic metrics that should be considered when potential investors are choosing where to place their hard-earned dollars. In evaluating a corporation, investors can assess leadership, revenue growth, price/earnings ratios and profit margins.

Evaluating charities isn't so straightforward. Besides looking at the financial information of the organization, charity evaluations must include the importance and effectiveness of the program the charity provides. Hence, it's difficult to establish metrics that can easily determine a charity's success. Even the self-described "charity watchdog" groups can't seem to agree on their own evaluation metrics.

For instance, the American Institute of Philanthropy only gives high ratings to charities that put at least 60 percent of their total spending toward programs. Charity Navigator only rates a nonprofit with "4 Stars" if more than 75 percent of its income goes toward program spending. The Better Business Bureau's Wise Giving Alliance demands that program spending be a minimum of 65 percent of total expenses.

This confusion would be laughable if the subject wasn't so serious. As a result of this simplistic dependence on an arbitrary ratio rather than a full examination of an organization's program effectiveness, well-known nonprofits like Girls Scouts of the USA are rated A- by AIP but given only two stars by CN.