The GoFundMe Phenomenon

Charitable giving has moved online over the past several years and the biggest trend is crowdfunding. Websites like GoFundMe.com and YouCaring.com allow individuals to create fundraising campaigns that generated nearly two billion dollars in peer-to-peer giving last year.  This explosion of donations represents a new frontier in giving; most funds raised go directly to individuals instead of traditional 501(c)(3) charitable organizations.  Thousands of successful campaigns show that crowdfunding is a viable option to raise funds quickly.  However, with this new method of fundraising come new questions for donors and beneficiaries.

There are many worthy causes among the tens of thousands of GoFundMe campaigns, such as those for cancer treatments and victims of disasters.  However, there are also many frivolous and even fraudulent campaigns.  A new GoFundMe campaign is created every 18 seconds, and CEO Rob Solomon concedes “there is virtually no way to proactively screen each and every one when they are created.”  This means that donors should attempt to do their own due diligence before clicking donate.  GoFundMe’s FAQ section advises to “only donate to people you personally know & trust” since campaigns could conceivably be created by someone with no connection to the purported beneficiary.  If this is their advice, why not write that person a check?

Crowdfunding also falls short in our advice that our clients use each dollar in their financial plan efficiently.  After platform and processing fees, GoFundMe donations are reduced by 7.9% for individuals and 9.25% for prescreened charities.  If choosing between two identical investments with a 9.25% difference in fees, the choice would be obvious, yet this has become a strategy for charities to smooth revenue with year-round donations.  These fees scream inefficient investment even before considering the lost opportunity to increase efficiency by donating appreciate securities, for example.  As a potential donor, it pays to ask if there is a more efficient way to donate, both for you and the donee.

Is there a better way to donate?  Certainly when it comes to established tax deductible charities it would be worth a few minutes to donate directly through their website and bypass platform fees.  As far as campaigns for individuals, I would feel more confident giving directly or to a bank account set up in their name.  This would ensure the money does not disappear into the wrong hands or put the donee into questionable tax territory.  However, these types of gifting accounts have been in place for years and were not able to generate the donation volume enabled by the ease of crowdfunding.  It seems that the very thing that makes crowdfunding successful, its ease, also opens it up to fraud and misuse.  Like any other financial decision, we advise our clients to “know what they own” and understand their methods of giving the same as they would any investment.