Crowdfunding sites can help improve the lives of those struck by disaster or help bring the next big thing to market. But it’s important to understand the risks before giving.
Know exactly who or what you’re supporting
There are many crowdfunding sites out there. The sites allow a lot of people to give small amounts of money to fund a big project or cause, called a campaign. Anyone can set up a campaign and ask for money.
One example of a well-publicized campaign gone wrong happened when a couple claimed they were raising money to help a homeless man find housing and meet other basic needs. Later, it was revealed the organizers planned to keep the money for their personal gain. However, there are many more stories of donations that helped a family start over after a devastating fire or helped whole communities rebuild after natural disasters.
So, it’s important to know as much as you can about the cause before donating. Start by reading the crowdfunding site’s comments page to learn more about the project and the organizer from others who have contributed. These early contributor comments may be from friends and family who are supporters, so also do an internet and social media search for comments. If after reading these comments, there’s more you’d like to know, email the campaign sponsor directly. If you don’t get a reply, then you may not want to support that cause. After you’ve donated, be sure to follow up with the cause to ensure your funds were used as promised.
Know your giving comfort level
Keep your budget in mind when deciding to give. How much you give may also be impacted by the amount the crowdfunding site charges for campaign processing fees. That fee is deducted from what you give to the campaign, unless you decide to also cover the processing fee.
Also, check with your tax advisor since crowdfunding may not be considered a tax-deductible donation.
Know how to give safely and securely
Read the site’s privacy and security policy pages. You’ll learn how the site will use your personal information and how it will keep it safe.
Focus your giving on established and trusted sites. Just as if you were making an online donation to a charity, take steps to keep your personal data secure when giving to a crowdfunding campaign. Be careful what information you post in public. Verify that any credit card data, usernames and passwords you enter on the site will be kept secure. Look for a closed padlock icon next to the website address. This means your web traffic is encrypted.
If you receive an unsolicited email, phone call or social networking post requesting a donation, don’t reply. The messages may include links to fake websites designed to look like legitimate companies. It’s best if you initiate the donation instead of responding to a solicitation.
Get familiar with the site’s policy on giving and refunds. If the project turns out to be fraudulent, it may be difficult or impossible to get a refund.