A.,
You have really raised a lot of good issues for discussion--1) having kids raise money at school and being rewarded for it on a competition basis 2) having kids raise money at school to benefit something outside of school 3) how to teach your child to be charitable 4) how to give joyfully and not feel jaded about donating. I can tell you spent a lot of time thinking about this post before you wrote it.
Before I donate money or time, I try to find out about the organization -how it raises money (paid staff or volunteers), what the money is to be used for, who runs the organization and how efficient they are (how much money gets spent on what they do vs. overhead or fundraising). Find out who the services are meant to help and what someone has to do to qualify. And what type of track record does the organization have--do they do what they say they are going to do. A lot of this information is on charity is posted on Guidestar that tracks charities. There are other charity watchdogs, too. I volunteer with several organizations and I also support them financially because I can see what they do that matters.
I think there are some people that genuinely need help. Sometimes it is their own fault and sometimes it is just a matter of circumstance. And unfortunately, there are some people who have gotten very good at beating or defrauding the system or feel they are entitled. I try to support things that help kids or elderly people since they usually don't have the means or the "voice" to speak up for themselves.
Now about the school fundraiser for the Y program. I was kind of surprised that the school is raising money for the Y. The Y should have the ability to do fundraising on its own to support its programs and shouldn't have to go to children to raise money. I will admit that schools and PTA's and school organizations often hold fundraisers (way too often) in my opinion, but often they are necessary to provide "extra" things that are not provided in the school budgets. My kids are out of school now, but I do support the fundraising efforts of our local schools-I would rather give a check donation to the school instead of buying more candles or wrapping paper. And I always support food drives or paper good drives that the kids organize to support a local charity. There actually is quite a bit of learning when a class takes on a project like that)
One way I was able to teach my kids about charity and community service was to model it for them and with them. We were involved with scout groups and volunteered at food banks or cleaning up trash or reading to kids at the shelter. In that way, they got to see what their efforts were accomplishing and people that they were helping. They learned lessons in how fortunate we were and they came up with their own projects. After reading some books to the kids in the shelter, they decided the shelter needed more books and did their own book drive to help out.
Good luck!