Donate Unrestricted

March 2021

The secret curse of the nonprofit world is restricted donations.
If you haven't been involved with nonprofits, you may never have
heard this phrase before. But if you have been, it probably made
you wince.

Restricted donations mean donations where the donor limits what can
be done with the money. This is common with big donations, perhaps
the default. And yet it's usually a bad idea. Usually the way the
donor wants the money spent is not the way the nonprofit would have
chosen. Otherwise there would have been no need to restrict the
donation. But who has a better understanding of where money needs
to be spent, the nonprofit or the donor?

If a nonprofit doesn't understand better than its donors where money
needs to be spent, then it's incompetent and you shouldn't be
donating to it at all.

Which means a restricted donation is inherently suboptimal. It's
either a donation to a bad nonprofit, or a donation for the wrong
things.

There are a couple exceptions to this principle. One is when the
nonprofit is an umbrella organization. It's reasonable to make a
restricted donation to a university, for example, because a university
is only nominally a single nonprofit. Another exception is when the
donor actually does know as much as the nonprofit about where money
needs to be spent. The Gates Foundation, for example, has specific
goals and often makes restricted donations to individual nonprofits
to accomplish them. But unless you're a domain expert yourself or
donating to an umbrella organization, your donation would do more
good if it were unrestricted.

If restricted donations do less good than unrestricted ones, why
do donors so often make them? Partly because doing good isn't donors'
only motive. They often have other motives as well — to make a mark,
or to generate good publicity
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