Several years ago, one of my children wanted to participate in a Rotary Youth Exchange and spend a year of high school studying overseas in Chile. As one of six children, he knew that his parents were more focused on paying for college than giving him money to live in another country. Thus, our son worked at a fast-food restaurant every day after school and all weekend long, saving every penny. Yet as the time to leave approached, he still was a few dollars short. To make up the difference, our son turned to crowdfunding.
For the uninitiated, crowdfunding is the practice of raising small amounts of money from a large number of people. Countless websites like GoFundMe, Indiegogo, and Kickstarter allow people to ask for money from the public at large. Budding entrepreneurs use crowdfunding to build a prototype of their invention. Charities use it to raise money for projects. Teachers use crowdfunding to pay for classroom supplies. Undiscovered musicians use it to produce an album. Increasingly, though, crowdfunding is being used by people who need money during a time of crisis.
There are countless stories in the media of communities coming together through crowdfunding to help people in need. So much so that you might believe crowdfunding has become an important part of our social safety net. Yet researchers from the University of Washington have concluded just the opposite, noting “research on charitable crowdfunding has shown that, despite its popularity, it exacerbates social inequities, providing financial relief primarily to privileged recipients.”
The study “Crowdfunding as a Response to COVID-19: Increasing Inequities at a Time of Crisis” was recently published in the journal Social Science & Medicine. The researchers looked at 175,000 fundraisers set up on GoFundMe in which struggling people were asking for money for basic needs like food, rent, and funerals as a direct result of COVID-19. The study noted that “overall, campaign success was extremely rare, and performance across multiple indicators was overwhelmingly poor.”
Despite the media attention on the rare success, the typical campaign with a goal of $5,000 had a median of only 2 donations collecting a meager $65 in total. “Strikingly, 42.3% of all campaigns in the COVID-19 dataset received no donations at all, and more than 90% did not reach their campaign goal.”
Not surprisingly, a campaign’s likelihood of success is closely tied to the wealth of a community. “Higher income and education levels in the county where a campaign was created are associated with a higher number of donations in all models,” note the researchers.
In many ways, crowdfunding is nothing more than a digital version of an old-fashioned barn-raising. It’s a community coming together to help one of their own. With my son’s year in Chile, the donors to his little crowdfunding campaign were exclusively family and personal friends. Similarly, my lovely wife and I have been asked by numerous family members and friends to help with their personal crowdfunding campaign during a time of financial crisis. At its best, crowdfunding a beautiful example of people giving back to help those they love.
The challenge, of course, is that crowdfunding only works if the person seeking the financial assistance has a network of family and friends with money to spare. For a struggling person who lives in a low-income neighborhood where everyone else is struggling as well, crowdfunding is completely useless. The researchers conclude that because “most crowdfunding solicits donations from existing social networks, it has the potential to exacerbate economic and social marginalization and widen inequities.” Put more simply, “the populations most in need of crowdfunding support may be the least likely to access it.”
In February, Tim Cadogan, the CEO of GoFundMe, wrote an open letter to Congress saying, “our platform was never meant to be a source of support for basic needs.” Yet increasingly it’s being seen as just that – some sort of slick, high-tech replacement for human service programs. Unfortunately, crowdfunding fails miserably for the overwhelming majority of people who are in real financial crisis.
The next time you help a friend in need through crowdfunding, remember that there are many others in the exact same situation who don’t have financially secure friends like you. For a list of non-profits that serve struggling families in Door County, visit http://www.GiveDoorCounty.org and click on “Find a Charity.” Make that crowdfunding gift to the person you love, but then make another contribution to a charity that will help those folks not lucky enough to have you as a friend.
This column by Bret Bicoy originally appeared in the Peninsula Pulse on September 3, 2021.
Bicoy Philanthropic Advisors 