How Philanthropy Works

Most of us learned as children that sharing is a good thing. We didn't know we were practicing philanthropy -- we just knew that giving to other people or important causes made us feel good. Decades ago, many people tended to give to the organizations that touched their lives, such as churches, hospitals and schools. (Those three are still among the most popular recipients of charitable giving.)

Today, there are more than 600,000 charities and foundations operating in the United States, representing, it seems, every conceivable cause on the planet. Charities are making their presence known through elaborate ad campaigns, Web sites and high-profile fundraisers. These more organized, more visible efforts are necessary, charities say, because:

  1. Their services are more in demand than ever.
  2. Government funding is declining and, in many cases, disappearing.
  3. The cost of everything continues to spiral upward.

Americans have responded generously -- charitable giving in 2005 totaled over $260 billion, according to the American Association of Fundraising Counsel. Who's doing the giving? People like you and me, according to the Association of Fundraising Professionals, which reports that individual gifts represented about 76 percent of the money raised by charities in the United States in 2002. Donors have become more savvy and now require greater accountability from the charities to which they give. In this article, we'll take a close look at how philanthropy works, the various ways in which you can contribute and how you can make sure your donation is going where it should. We'll also discuss tax-deductible gifts and look at volunteerism, another way of giving.

At its core, philanthropy is anything that represents a direct effort to help others -- ideally, effort expended without expectations of getting something in return. Many organizations directly benefit people who need help; others, such as conservation nonprofits (see How The Nature Conservancy Works), contribute in ways that indirectly but significantly affect us and our children and our grandchildren. We are free to give our money to charities that assist causes we believe are important.

The size of the gift isn't what characterizes a philanthropist -- nationally, an independent survey found that people in the lowest income brackets tend to donate as much or more than their higher-wage counterparts. According to the BBB Wise Giving Alliance, the average American household donates about 2 percent of its annual income. Most charities say that they still rely on these individual gifts for survival. ­