Don't Judge a Charity by Its Expense Ratio

There is only a few months until July when 3-Day season kicks off with Boston! As I prepare for the event, getting rosters, calling the team, scheduling flights, I came across an article today that fits the way I feel about charities in general, but also about the way people think. The gist of the article is about the common measure by which people judge charities and ultimately contribute to. The popular measure is the percentage of adminstrative costs or expenses in relationship to how much goes to the cause.

I can see where this can be a problem. We've probably all heard the stories of how much Girl Scout cookies cost and how much actually goes back to the troops. We see stories in the paper about the high compensation of CEOs and executives while the average American struggles to make ends meet. We use past experiences as our guidelines to make snap judgements, which the article refers to a study about how the brain thinks.

Basically, our brains have 2 ways of thinking. The first way is the easy way, we look something over and using our past experiences we make a judgement call. The second way is a lot harder where there is actually an analytical side to handle complex issues. The problem is that it takes work and the brain natually shifts to the easy way.

So think about this. If Apple, the world's most valuable company right now, had an expense ratio of 20%, would you say that it is being mis-managed? How would you tell? You might respond that it takes more than that to assess if the company is not living up to its shareholders, such as stock price, debt to equity, sales turnover, new product successes, etc.

Then should a charity only be judge by one measure?

Check out the story The worst way to judge a charity
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