Statistically, high-net-worth charitable giving accounts for about two-thirds of all individual giving and about one-half of all charitable giving in the United States. Unfortunately, according to the “2010 Study of High Net Worth Philanthropy,” by Bank of America Merrill Lynch (a biennial study done in partnership with the Center on Philanthropy at Indiana University), charities are having to make do with less. Median charitable giving by high-net-worth households dropped 7.6 percent from 2007 to 2009. Average charitable giving fared even worse, declining an astonishing 34.9 percent from 2007 to 2009. The cause for these declines is the “Great Recession,” which began in December 2007 and supposedly ended in June 2009.
In addition to tracking the amounts given in 2009 (compared with 2007) by high-net-worth households, the study also looks at trends in the attitudes and giving behaviors of wealthy donors. Topics include which non-profit sectors high-net-worth households support, how they direct their largest gifts, what motivates them to give and to discontinue support for a non-profit organization, where and how often they volunteer and whom they turn to for advice about philanthropy.
The 2010 study follows the same methodology as the 2006 and 2008 studies. It reflects the responses of more than 800 households randomly surveyed in affluent neighborhoods across the United States. Households in the study have an income of greater that $200,000 and/or a net worth of at least $1 million, excluding the value of their primary residence. The average wealth of the respondents was more than $10 million, and half of all respondents had a net worth of between $3 million and $20 million. Access to the full 75-page 2010 study is available at high-net-worth study.
Declines Reflect Overall Economy
According to the study, high-net-worth households continued to support charitable organizations at levels that are remarkably consistent with those seen in 2007, with 98 percent of households donating to charitable causes in 2009. High-net-worth households also reported a continued strong commitment to supporting the same organizations year after year (66 percent). Although 35 percent stopped giving to at least one organization in 2009, this percentage didn’t change from 2007 – and indicates that donors were no less committed to the organizations they supported in the recent recession than they were before it began.
Reflecting the bad economy, wealthy donors contributed 9 percent of their income to charitable causes in 2009, compared with approximately 11 percent in 2007. While commitment to continuing support for nonprofits remained high, wealthy households reduced the dollar amounts they gave to charity in 2009, with the median overall giving decreasing 7.6 percent compared to 2007 and the average giving dropping 34.9 percent. Several sectors (including the arts, environment and international giving) saw increases of between 4 and 21 percent.
Some of the big losers in giving among nonprofits in 2009, compared to 2007, were health (down an average of 64 percent), education (down an average of 55 percent) and religious causes (down an average of 43 percent). Surprisingly, giving for basic needs dropped an average of 20 percent even though the percentage of high-net-worth households that gave to nonprofits that support basic human needs, such as food and shelter, increased from 75 percent in 2005 to 85 percent in 2009.
In 2009, entrepreneurs (households in which 50 percent or more of their net worth comes from a family-owned business or a start-up company) gave the most to charity – (an average of $105,000) compared to high-net-worth households who have other primary sources of net worth. Among the least philanthropic households in 2009 were those that made their money through real estate holdings ($32,781).
Volunteering remains a significant part of the philanthropic efforts of wealthy individuals. Since 2007, high-net-worth households have been increasing the amount of time they give to organizations and causes they value. Nearly 79 percent of high-net-worth individuals volunteered in 2009, and the percentage who volunteered more than 200 hours a year rose significantly, from 27 percent in 2007 to 39 percent in 2009. The study also found, not surprisingly, that the more high-net-worth individuals volunteered, the more they gave. For example, non-volunteers donated $46,414 on average in 2009, while those who volunteered more than 200 hours donated $75,662 to charity last year. The rise in volunteerism, according to the study, may be due to a combination of factors, including a tendency among donors to compensate for financial constraints during a time of recession by committing more of their time, skills and other human capital. Another factor may be that baby boomers have begun to retire or scale back on their working hours, leaving more time for volunteer efforts.
Why the Wealthy Give …or Don’t
When asked about their charitable behavior, the top motivations of high-net-worth households for giving were:
1. Being moved by how their gift can make a difference (72 percent).
2. Feeling financially secure (71 percent).
3. Giving to an organization that will use their donation efficiently (71 percent).
4. Supporting the same causes or organizations annually (66 percent).
But in 2009, 35 percent of wealthy households stopped giving to at least one organization, and 27 percent stopped giving to at least two organizations that they had previously supported. The top four reasons cited in the study for why donors stopped giving to a particular charity were:
1. Too frequent solicitations/organization asked for inappropriate amount (59 percent).
2. Decided to support other causes (34 percent).
3. Household circumstances changed (for example, financial, relocation, employment) (29 percent).
4. Organization changed leadership or activities (29 percent).
Attracting and Retaining Donors
Ninety-five percent of wealthy households reported either some or a great deal of confidence in the non-profit organizations’ ability to solve societal or global problems. In a continuing trend from the previous study, donors also have high expectations of charitable organizations, listing the following factors among those they consider most important when determining which to support:
1. Demonstrate sound business and operational practices (87 percent).
2. Acknowledge contributions, including sending receipts (85 percent).
3. Spend an appropriate amount on overhead (80 percent).
4. Do not distribute personal information (80 percent).
More than 16 percent of wealthy households gave to charitable giving vehicles such as private foundations (PFs), donor-advised funds (DAFs) and charitable trusts in 2009. The average amount given to these vehicles increased by 21 percent, from $62,680 in 2007 to $75,867 in 2009.
In a new area of research, the latest study examined high-net-worth households’ levels of risks tolerance among their personal and philanthropic investments (for example, PFs, DAFs and charitable trusts). The results show that while 35 percent of wealthy households cited a willingness to tolerate above-average or substantial risk in their personal investments, only 23 percent reported these high levels of risk tolerance when it comes to philanthropic investments. Furthermore, while only 10 percent of wealthy households reported they weren’t willing to take any risk in their personal investing, 26 percent cite being totally risk-adverse with their philanthropic investments.
Finally, the study continued to examine trends in charitable giving advice sought by wealthy donors. Consistent with trends observed between the 2006 and 2008 studies, the 2010 study shows significant increases in donors’ use of accountants (68 percent in 2009 compared to 44 percent in 2007) and financial advisors (39 percent in 2009 compared to 28 percent in 2007) to help them make charitable giving decisions. Consulting with attorneys for charitable giving advice dropped from 43 percent in 2007 to 41 percent in 2009. High-net-worth households also consulted with non-profit personnel (24 percent) in their charitable decisions around philanthropic mission definitions and creation. More than 90 percent of wealthy households initiated the discussions with their advisors, and 85 percent were satisfied with the advice given.
Although charitable giving by the wealthy decreased significantly in 2009 according to the study, the decline appears to be the result of nothing more than a very bad economy. The “Great Recession” has affected us all. Let’s just hope that the changes aren’t structural.