Charitable giving comes from “story world.” Effective fundraising story triggers visualization producing social emotion. This is the engine that drives giving.

But story world isn’t the only world. There’s also “commerce world.” Commerce world is all about accounting, contracts, and complexity. These can also be part of a giving decision. But they’re not the engine. These act only as a brake on giving.

Story world and commerce world are different. The rules in one world don’t apply to the other. Giving comes from story world. Thus, giving decisions often won’t match the rules of commerce world.

Investments in commerce world

Consider this business proposal: A new partnership will build a $100 million apartment complex. You’re thinking about buying 1% ownership for $1 million.

Would you care what part of the construction your $1 million would purchase? Would you demand, “I want my money to be spent on plumbing, but not on architecture fees!” No. Would such a demand even make sense? Also no. Asking which part your money would be used for is silly. It’s silly because money is fungible. Your dollar is the same as any other.

You would care about the project’s total cost. Unneeded cost would make your investment less profitable. But you wouldn’t care about assigning your dollars to any particular expense.

This makes sense. It makes sense in commerce world. But it’s not how fundraising works.

Investments in story world

In fundraising, people behave differently. Fundraising doesn’t live in commerce world. It lives in story world.

In story world, dollars are magical. They are characters in a fantasy drama. Some dollars are assigned to compelling roles. (Maybe your dollars buy the apartment’s fire alarm. They play the role that saves sleeping babies!) Others are not. (Maybe your dollars only pay for debt charges.) In story world, the project’s total cost isn’t all that relevant. What matters is that your dollars play a compelling role.

Fundraising is not commerce world: Experiments

Donors should “invest” their charitable gifts wisely. They should care about efficiency. Experiments show they often don’t.

In a lab experiment, some donors received positive financial reports about a charity. These proved the charity’s efficiency. The result? These

“did not translate into increased actual giving.”215

In another experiment, donors could give to charities. However, the charities were unknown to them. But donors could access the charities’ financial efficiency details. What happened?

“[T]he majority of actual donors were unwilling to obtain this information.”216

This was true even if

This lack of interest matches the lack of positive impact of such information. A meta-analysis, combining results from many studies, found

“no positive effects at all for providing people with information about charity efficiency or effectiveness.”217

In one experiment, some donors learned that their selected charity’s overhead ratios were better than they expected.218 The result? A third of these donors actually reduced their giving. Donors argued that they, “Give less but give smart.” (They got the same charitable impact with fewer dollars.)

That’s what happens in lab experiments. What happens in the real world? One field experiment tested more than 8,000 appeal letters. Some people got an appeal letter. Some got the same appeal letter plus a second page including positive financial information. (For example, 92% of charity funds were spent on program services.) The result? Adding this information reduced the likelihood of giving.219

Apparently, donors don’t give to financial efficiency. They don’t even want to read about it. Positive financial information doesn’t help.

However, negative financial information can still hurt. Some experiments show that donors will avoid projects or charities with higher overhead.220 Math isn’t the engine for giving, but it can be the brake. This is true. Unless. Unless we change the story.

Fundraising is story world: Experiments

Avoiding high overhead projects or charities matches commerce world. Wise donors should select efficient charitable investments. High administrative costs might reflect lower efficiency.

But experiments show something different. Donors are not always averse to high-overhead projects or charities. They just don’t want their dollars to be spent on overhead.221 If their dollars are spent on overhead, then overhead is a problem. If other donor’s dollars pay for it, then overhead isn’t a problem.

What matters is not the project’s efficiency. What matters is their donation story. Of course, assigning their dollars to the more exciting parts doesn’t change the project’s efficiency. But it does make their donation story better.

Other experiments found other story solutions.222 One found that paying for overhead wasn’t a problem if the words changed. Just avoiding the word “overhead” helped.223 So did replacing “overhead” with “overhead to build long-term organizational capacity.” It wasn’t about the numbers. It was about the story.

Of course, this makes no sense in commerce world. The study authors noted,

“From a rational accounting perspective, this distinction should be irrelevant, but by framing the connection between the donor’s gift and the resulting benefit differently, although the objective benefit remains the same, the tangibility of the benefit is viewed differently (James, 2017).”224

Another experiment looked at student giving to a campus synagogue.225 The synagogue had expenses for

  1. Prayer books and religious books

  2. Electricity, cleaning, and food

Both types of expenses were necessary. But when gifts paid for the first type of expense rather than the second, donations were four times larger. Of course, donors didn’t want a dark and dirty synagogue. They just wanted someone else’s money to pay for that boring stuff.

In commerce world, a dollar is a dollar. But in story world, donors want their dollars attached to the interesting parts of the story. This is true not just for how its use is described. It’s true for when the gift is made. Donors are more willing to give money that helps start226 or finish227 a fundraising campaign. Starting gifts tell a “pioneer” or “leadership” story.228 Ending gifts tell a “victory” or “finish line” story.229

In reality, money is fungible. A dollar is a dollar. A dollar given in the middle isn’t any more or less efficient that one given earlier or later. A project costs what it costs. Efficiency doesn’t change if some dollars are assigned to one part or another. It doesn’t change if an expense is described with different synonyms. These are realities. But they’re realities from commerce world, not from story world. Giving comes from story world.

Fundraising is story world: Academic theory (anthropology)

Issues that make no sense in commerce world can be key in fundraising. This distinction between worlds is not superficial. Philanthropy operates in a separate world from commercial exchange. It always has. A century ago, anthropologist Marcel Mauss studied gifting in indigenous cultures. He explained,

“We have repeatedly pointed out how this economy of gift exchange fails to conform to the principles of so-called natural economy or utilitarianism … money still has its magical power and is linked to clan and individual.”230

In other words, giving is “magical.”231 It lives in the world of story, often in the fantasy genre. These motives for gifts, Mauss explains,

“are not to be found in the cold reasoning of the business man, banker or capitalist.”232

It’s no surprise then that economic theory took some time to adapt to this reality.

Fundraising is story world: Academic theory (economics)

Economic theory in philanthropy started with a model from commerce. This was called the public goods model.233

In this approach, donors wanted only the charitable outcome. They wanted a new park or less homelessness. They didn’t care if they personally caused the change or not. Ideally, someone else would give instead of them. That way they could enjoy the outcome without paying. Although attractive to economists,234 this model had a problem. It often didn’t match actual human behavior.

This led to the “warm glow” model of giving.235 This model added the idea that donors enjoy the act of giving. This allowed for the opposite extreme. A donor could enjoy giving even if their gift didn’t change anything.

More recently, a third model described “impact philanthropy.”236 In this approach, donors care about their “perceived impact.” They want to personally make a difference. But the calculation of this impact is not objective.237 It changes with various framings, descriptions, and temporary allocations. In other words, impact is based in story.

Thus, even economists have had to move beyond the cold reasoning of market-exchange models. Even they have had to adopt fuzzier concepts like “warm glow” and “perceived” impact.

Two worlds

Commerce world cares about accounting and efficiency. And rightfully so. But fundraising doesn’t live in commerce world. Fundraising lives in story world. Accounting can confirm or contradict a social-emotional story. But it can’t create it. Effective fundraising doesn’t start with accounting. It starts with story.