New Center On Philanthropy Survey

Bank of America and The Center on Philanthropy released the results of a new survey today. The survey focused on the how wealthy individuals practice philanthropy and what their motivations are. The survey defined high-net-worth households as those with incomes of greater than $200,000 or assets over $1 million. Such homes represent 3.1% of U.S. households, but contribute two-thirds of household charitable giving, donating $126 billion in 2005.

I think the results are important and speak to some of the reasons why The Second Great Wave of Philanthropy is unfolding.

Key Findings:

"There is a surprising correlation between donations of time and dollars. While a popular stereotype holds that the wealthy simply "write a check" to discharge their moral obligations, the Bank of America study appears to dispel that notion. Instead, those who write checks are also likely to volunteer their time, and, the more time volunteered, the bigger the check. Survey respondents who volunteered 1-50 hours annually gave an average of $31,092, while those volunteering 51-100 hours gave $92,717 and those over 201 hours gave 132,086.”

People who give are passionate about the causes they support. It is important to dismiss the idea that major donors simply want a tax break. This is important for nonprofits to understand when they decide how best to convince a donor to make a large gift (hint: leading with the tax benefits is not the best idea!). It is also important for those of us practicing tactical philanthropy to understand. Too often, financial advisors, estate planners and accountants believe that tax planning is driving their clients giving. They often reinforce this concept by steering their clients towards tactics that produce the highest tax benefit, but may not have the charitable impact that the donor is trying to achieve.

“Even major tax policy changes would not impact their giving. Wealthy donors report that tax considerations are far less important to them than is commonly assumed. For example, more than half the respondents (56.1%) said their giving would stay the same even if the estate tax were repealed. Similarly, 51.7% said their giving would stay the same even if there were zero income tax deductions for gifts to charity. In another demonstration of resiliency unrelated to taxes, households with "dramatic decreases" in wealth still gave an average of $121,216 in 2005 to charity, while those with "dramatic increases" were only slightly higher in donations at $141,298.”

It is my experience that major donors do not pay nearly the same amount of attention to the tax ramifications of their giving as they do to their retirement planning. While tax planning should not drive charitable giving plans, donors need to recognize that by not utilizing the most effective tactics that achieve their charitable goals, they are diverting money away from the very charity they seek to support.

In addition, I believe that while tax breaks are not the major motivation for giving, they do create an incentive to take action. This is why such a large amount of charitable giving is executed in November and December. While donors have every good intention to give, the year-end tax deadline creates an incentive to act now, rather than waiting until they get around to it.

"Entrepreneurs are especially generous donors. In comparing household donations by sources of net worth, entrepreneurs stand apart for giving, contributing an average of $232,206 annually. The next highest donors were those who inherited wealth, giving an average of $109,745, less than half the total of entrepreneurs. Yet that was still higher than those whose net worth came from savings ($84,882 donated), return on investment ($69,978) or real estate ($11,015).”

The last 20 years has seen a massive decline in the percentage of wealthy individuals who inherited their wealth and a massive increase in the percentage who are self-made. This shift combined with the higher level of giving by entrepreneurs has been an important element in driving The Second Great Wave.

"Charitable giving increased over the last five years. When asked about the level of their charitable donations, nearly two thirds (65%) of wealthy donors somewhat or dramatically increased their charitable giving over the past 5 years. Less than 12% of high net worth households decreased their contributions.”

Some people may dismiss the growing buzz around charitable giving as being driven by a few high profile gifts by the likes of Warren Buffett. However, with 65% of wealthy donors increasing their charitable giving over the past five years, we know that we are seeing a broad change in cultural norms.

"Wealthy donors support a broader array of causes. High net-worth households differ from the general populace by supporting a broader array of charities.”

I define Tactical Philanthropy as being concerned with “organizing and optimizing the transfer of philanthropic capital”. While I generally speak about the structure of philanthropic capital transfers, the number of organizations that receive these transfers is also important. I generally agree with Trent Stamp that donors should consolidate their giving. I recently commented on Trent’s blog regarding this concept:

“I think focus is very important. Just like superior companies focus on what they do best rather than try to provide many different products and services, most donors should figure out what is most important to them and spend the majority of their time, money and energy on these topics. However, just like there are successful conglomerates, some large grant makers can tackle numerous issues at once.”

(Boy, wait until Phil at Gift Hub sees my “application of business logic” in that comment!).