What is Restricted Giving?
Restricted giving limits what charities can do with the money donated to them. By extension, restricted gifts often limit what a charity can accomplish. A check memo line listing a specific program creates a legal obligation for a charity to spend money for the associated donation in the prescribed manner. As a donor, this may seem appealing: you may want to ensure your donation is used for a specific purpose. We urge you to think carefully before you give restricted gifts.
A common use of restricted giving is avoiding “overhead.” Overhead can include staff salaries, facilities, technological infrastructure, advertising, fundraising, and every other part of a nonprofit’s work that isn’t programming. The overhead myth is the still-prevent belief that these costs should be kept to a bare minimum to keep charities efficient. While there is the opportunity for abuse in overhead budgets, most charities would benefit from spending more on overhead. Hiring and retaining staff with relevant experience, upgrading technological systems to streamline work and services, and countless other activities that fall under the banner of overhead can potentially transform charities and increase their impact.
Unfortunately, restricted giving also plays a role in reinforcing inequality. Charities led by people of color receive less funding overall and face more barriers, including restricted giving. Implicit bias contributes to this disparity, so donors need to consider why they feel the need to place a barrier to the organization that knows how best to spend their fundraising dollars.
What is Unrestricted Giving?
Unrestricted giving puts money in the hands of organizations and allows the organizations to determine how it can best be used. Charities are best equipped to determine how donations can do the most good. They are the relevant experts that know what is - and isn’t - needed. Unrestricted giving is a show of trust that charities know their business. Nonprofits with access to unrestricted funds are free to execute their vision to reach their full potential.
Making Your Choice
There are reasons to provide restricted gifts, but those are exceptions. Unrestricted donations should be your default. If you want to restrict your giving because you are worried your money will go to waste, don’t give to that charity. Do your due diligence before you give, including a search on Charity Navigator to find and vet a charity you believe in and trust. Then, make your unrestricted donation secure knowing that your money is in good hands
Responsible Ways to Provide Restricted Gifts
Restricted giving doesn’t have to burden nonprofits. There are ways to provide restricted gifts that help advance charities’ work, but these require intentionality.
One common reason you may choose to restrict a gift is to direct your donation to a particular cause area within the work of a large organization. For example, if you want to support recovery following a disaster, you may donate to a community foundation. Community foundations usually have a range of issue areas they work in, so you may restrict your donation only to the disaster recovery portion of their efforts. Many community foundations create funds to make it easy for donors to target cause areas. This approach ensures that your money is going to the cause you care about without being so restrictive as to impede the work of the organization.
For large gifts, donors can make a plan with an organization to fund something specific that both the organization and the donor hope to accomplish. For example, if an organization wants to conduct research or pilot a new program that falls outside its existing work, a donor may fund that project. Some donors are now working to counteract the problems of restricted giving by earmarking funding specifically for overhead. These types of restricted giving are best done as part of a partnership with a charity. Building a meaningful and honest relationship with a charity is a vital part of a successful restricted giving strategy.