Why don’t people donate even if they want to?

Despite Hong Kong contributing HK$12.7 billion in charitable donations in 2019, public trust in the charity sector is not high. The primary reason is that individuals are not sure where their money has been funnelled into. As more and more supposed nonprofits are exposed for improper usage of donations, public trust in the charity sector decreases more and more. The Legislative Council states that “9200 charitable organisations are currently subject to weak oversight” as regulation is spread across “18 bureaus and departments”. (LegCo, 2021)

Additionally, at present in Hong Kong, there is no statutory definition of “Ccharities”, a Charities Ordinance nor a dedicated regulatory authority. As such, it is hard to check which charities do the best job in Hong Kong. 

As most people do not undertake extensive research when choosing which charities to donate to (nor should they be expected to), a common indicator of whether a charity does a good job is its administrative, or 'overhead', costs.

The lower the overhead costs, the better the charity? 

According to a YouGov survey, consumers expect the overhead costs of a charity to be not more than 17% of the total budget. This is because they believe that lower overhead costs reflect higher efficiency as a higher proportion of money goes directly to the beneficiaries or cause in need.

However, there is no causal relationship between overhead costs and impact. A charity that provides massages for billionaires may have extremely low overhead, but that does not mean it is worth donating to. If we consider the donation we make as a consumer product we are buying, we usually don’t care about the administrative costs of the companies we buy from. When we buy groceries from a supermarket, we care about whether we are getting our money’s worth, whether it is a good product and whether it fulfills our needs and desires.

In reality, a nonprofit cannot function effectively without investing in staff, technology, training, office space, marketing, systems building, and other essentials. You can't expect a management consultancy to produce stellar results without paying competitive salaries, research, and technology. Nor can you expect a school to produce academic results without paying for decent facilities, updated textbooks, or professional development for teachers. The same goes for charities. Without resources to support the infrastructure of their work, charities cannot deliver outcomes for their beneficiaries.

The Overhead Myth is therefore not only misleading but can be harmful to charities.

Source: LegCo, 2021, Regulation of malpractice of charitable organizations, https://www.legco.gov.hk/research-publications/english/essentials-2021ise06-regulation-of-malpractice-of-charitable-organizations.htm