Money: How to Give to The Little Guys

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Big charities keep getting bigger. But are they the best places for most people to send their hard-earned dollars? With so much money flowing to the most élite fund raisers, it's a fair question.

Donations to the 400 largest U.S. charities last year surged 13%, to nearly $63 billion, according to a new survey by the Chronicle of Philanthropy. The jump far outstripped a 2.7% gain in donations to all charities, and the near record pace of giving to the biggest nonprofits appears to be holding this year. About a quarter of last year's largesse went to just 10 charitable groups, including United Way, the Salvation Army and the Red Cross.

No question about it: America's venerable charitable institutions provide valuable support to all sorts of causes. But the nonprofit universe today is teeming with exciting new entrants. As baby boomers reach the age for giving back, they have begun doing so in nontraditional ways. Some are even starting their own community groups to, say, drive home teens who have drunk too much or tutor the children of prison inmates.

Those community initiatives have helped boost the number of U.S. nonprofits over the past decade 75%, to more than 1 million, and account for more than one-third of nonprofits worldwide. Close to half of U.S. charities have budgets under $25,000. Yet they are making a difference, and with a little more support, they could do much more.

The problem is that small charities tend to fly beneath most donors' radar. So it's the big, branded charities, with their honed message and their fund-raising skills, that attract big contributions. The top 400 get $1 of every $4 raised, a share that is edging higher even as the number of small nonprofits explodes.

The good news for small nonprofits is that more and more individuals are looking to find them. For one thing, there are preliminary signs that large donations, such as the $1.5 billion gift to the Salvation Army from the late Joan Kroc and the staggering $37.1 billion pledge from Warren Buffett to the Bill and Melinda Gates Foundation, lead some folks to conclude that big charities don't need their support--although the huge gifts more than offset any loss of small donations.

Others with a more activist bent want to be able to target a problem and see results. But, says Charles Raymond, managing director of Citigroup's Strategic Wealth Advisory group, "they have no idea where to begin."

If you're looking to give locally, you might start by interviewing your own or someone else's kids. They may be informed because community service is a growing component of high school curriculums. Websites that can help include guidestar.org bridge star.org independent sector.org ncna.org wisegiving.org and globalgiving.com

One way to vet nonprofits is by looking for charities with low operating costs. Ask a nonprofit what percentage of the budget covers overhead and how much the CEO takes as salary. But you should be wary of smaller nonprofits that have been around a while and have grown tired or obsolete, says Robert Egger, author of Begging for Change, a book about nonprofits. Egger's advice: look for an organization with some turnover at the board level, a sign that new ideas are welcome. But you should probably avoid an organization with persistent turnover in management, a sign that the charity is ineffective.