In June, the Giving USA Foundation—of which I voluntarily serve on the executive committee—releases its annual report on philanthropy. Generally, giving grows. For decades it has grown an average of 6% per year. Giving has declined only five times since 1967 (although it hasn’t always kept pace with inflation). Compared to volatile sectors like real estate or energy, growth in giving seems resilient.
Even the headwinds of a pandemic and social tumult in 2020 and 2021 didn’t diminish charitable giving. Giving grew 9% and 4% in those years (current dollars). When reports come out on the effects of 2022’s economic uncertainty on last year’s giving—whether good or bad—it’s likely a temporary blip in the inexorable rise of philanthropy.
There are fault lines in the philanthropic landscape. Participation has declined steadily for two decades: Today, fewer than half of households report making a charitable gift each year. Compare this to 2000, when 66% of American households donated to charity.
Despite declining participation, giving grows because high-net-worth households increase the amounts they give. As a result, charitable giving—like many sectors of our economy—has become more concentrated, with top-end donors representing a higher proportion of total giving.
What is the cause of this imbalance? Is it that individuals have lost faith in the power of philanthropy, as evidenced by declining trust in institutions? Are everyday households squeezed by inflation and stagnant wages? Do attention-grabbing headlines of charity wrongdoing crowd out positive messages from the majority of nonprofits doing good? Perhaps we should examine today’s sophisticated fundraising operations that shower attention on big givers, with lip service for those of comparatively modest means.
Don’t count on giving by foundations and corporations to blunt this trend. Despite noble promises, corporate giving has declined to less than 1% of corporate pretax profits. Without policy intervention, there’s little chance of a rebound to the 2% of pretax profits given in the mid-’80s. Giving by foundations is largely shaped by the giving behaviors of the wealthy, who have turned to family foundations and DAFs (donor-advised funds) as favored platforms—a parallel to the phenomenon of top-heavy giving by individuals.
Why does it matter?
Consider three concerns, below, about the direction of philanthropy. Two illustrate risks to the nonprofit sector and the broader economy—and because nonprofit organizations represent 5.6% of GDP and employ 10% of the workforce, the health of the sector has a significant influence on overall economic vitality. A third category explores the widening wealth gap (which, ironically, creates more pressure on the nonprofit sector) and the intrinsic value of inclusive models of social generosity.
- Donor concentration creates risk. There is an immediate risk to any nonprofit organization that relies on a diminishing number of donors to make ever-larger contributions. Just as a publicly traded company must disclose concentration risk if any customer represents more than 10% of its revenue, nonprofit organizations should recognize the risk of concentration among top-end donors. Should one abandon the organization, it may take years to nurture new supporters to replace lost revenue.
- The eventual, inevitable decline. Will growth in charitable giving ultimately hit a ceiling as a result of the shrinking pool of donors? Perhaps there’s a lesson from equity markets: When a stock’s price continues to rise even as trading volume declines, most pundits observe it’s time to sell. Just as volume is fuel for stocks, a growing pool of contributors is necessary for sustained growth in giving.
- Inclusive philanthropy is good for society. There are increasing questions about the very definition of philanthropy. For some, it conjures images of wealthy patrons writing large checks. Increasingly, its meaning is broadened to include other demonstrations of generosity for the benefit of society, such as gifts of time and talent. Younger generations and women particularly embrace this more inclusive definition.
What can be done?
There are efforts to study generosity and increase Americans’ understanding of philanthropy with the goal of increasing participation. Steps that could democratize charitable giving include:
- Embrace broader definitions of “philanthropy,” to include nonmonetary contributions (time, talent, testimony, ties) and forms of generosity not recognized by current counting methods: mutual aid, crowdfunding and direct support for individuals.
- Debunk the “Overhead Myth,” with its focus on short-term efficiency at the expense of long-term effectiveness. This (mis)calculation overlooks impact and causes fundraisers to focus exclusively on major gifts with higher immediate ROI and overlook everyday donors.
- Adopt tax policies that value all gifts, regardless of the donor’s income or the amount of the contribution, and that encourage giving versus hoarding.
- Question traditions that exacerbate exclusivity, such as donor recognition that offers major givers undue influence or privilege.
- Adjust fundraising tactics to reduce reliance on “big gifts” and build a pipeline of engaged donors of all means.
Philanthropy fuels nonprofit organizations and serves Americans in myriad ways. Agencies meet basic needs such as food, clothing and shelter for those with the greatest needs. A majority of hospitals are registered as nonprofits, as are most colleges, universities and independent K-12 schools. When people are inspired by art, informed by public broadcasting or educated about civic affairs, they are likely interacting with a nonprofit.
Beyond the common good served by individual nonprofit organizations is the greater good for society. This inclusive approach can build resilience, reduce risk and ensure that philanthropy can continue to fuel the causes that serve, unite and inspire.
Originally posted here on Forbes.