What Do Crises Mean For Philanthropy?

WHAT DO CRISES MEAN FOR GIVING? After September 11 Events, AAFRC Trust for Philanthropy and The Center on Philanthropy at Indiana University Examine Historical Precedents and Look at Factors Specific to 2001 that May Affect Giving September 20, 2001 -- INDIANAPOLISHow will the September 11 events impact the American economy and, consequently, Americans philanthropic giving? "It is difficult to predict

WHAT DO CRISES MEAN FOR GIVING?

After September 11 Events, AAFRC Trust for Philanthropy and The Center on Philanthropy at Indiana University Examine Historical Precedents and Look at Factors Specific to 2001 that May Affect Giving

September 20, 2001 -- INDIANAPOLIS—How will the September 11 events impact the American economy and, consequently, Americans’ philanthropic giving?

"It is difficult to predict what effect the attacks may have since they are in many ways unprecedented. However, looking at data from the time of previous major events, qualified by several factors unique to today’s situation, may offer some clues," said Russell G. Weigand, CFRE, chair of the American Association of Fundraising Counsel (AAFRC).

At the request of the AAFRC Trust for Philanthropy, the Center on Philanthropy at Indiana University examined what happened to the economy and to giving in the years surrounding 13 major events of terrorism, war (or war-like) acts, and political or economic crises. They are: the World War II Fall of France, Pearl Harbor, the Korean War, the Cuban Missile Crisis, the U.S. Bombing of Cambodia, the U.S. Gulf War Ultimatum, the bombings of the World Trade Center and Oklahoma City, the Assassination of President Kennedy, the Resignation of President Nixon, the Arab Oil Embargo, the Hunt Silver Crisis, and the 1987 Financial Panic ("Black Monday").

"We know that giving is closely correlated with the economy, and there do seem to be some fairly consistent trends in giving and in the economy in the years surrounding these major national events," said Patrick M. Rooney, director of research and chief operating officer for the Center on Philanthropy. He cautioned, however, that the data examined do not show whether the events caused changes in giving and the economy, or whether changes were coincidental or influenced by other factors.

Historical View

Stock Market Activity

* The stock market has dropped conspicuously immediately following most of the major crises evaluated. The exceptions are: President Kennedy’s Assassination, the Gulf War Ultimatum, the Bombing of the World Trade Center (1993), and the Oklahoma City Bombing.

* Within one year of the date of the event, the market had recovered (within one percent) or more than recovered its value in all but three cases (the Fall of France, the Arab Oil Embargo, and the Financial Panic of 1987).

Giving

* The total amount of giving in the U.S. has increased every year but one (1987) for the past 40 years, including through wars, recessions and other crises. While the rate of growth has varied from year to year, each year Americans have given more than the previous year.

* For the year in which an examined event occurred, rates of growth in giving were mixed, increasing in some years, decreasing in others.

* However, in the calendar year after an event, giving grew at a greater rate than it did during the year of the event. This was true in all but three cases: the year after the Fall of France, President Kennedy’s assassination, and the 1993 World Trade Center Bombing.

* Further, in the calendar year after an event, giving grew at a faster rate than it had during the calendar year before the event, with two exceptions: the year after the World Trade Center Bombing and the year after the October 1987 Financial Panic.

Acts of War

* Of the 6 acts of war examined, in the year in which the event occurred giving grew faster than it had the prior year, except in the year of the Cuban Missile Crisis and in 1970 when the U.S. bombing of Cambodia began.

* In the year following the acts of war examined, the rate of growth in giving increased more than it had in the year of the act of war, and more than in the year prior to the act of war, except for the Fall of France.

Acts of Terrorism

* In the two acts of terrorism examined, in the year in which the event occurred the rate of growth in giving increased over the prior year.

* The rate of growth in giving slowed in the year after the 1993 World Trade Center Bombing, and increased in the year after the Oklahoma City Bombing.

Political Crises

* In the political crises examined, in the year in which the event occurred the rate of growth in giving grew more than it had during the prior year.

* In the year after President Kennedy’s assassination, the rate of growth in giving decreased compared to the previous year. In the year following President Nixon’s resignation, the rate of growth in giving increased compared to the year of the event.

Economic Crises

* For the economic crises examined, the rate of growth in giving in the year of the event increased in the year of the Arab Oil Embargo and in the year of the Hunt Silver Crisis, but decreased in the year of the 1987 Financial Panic. In the year following each of these economic crises, the rate of growth in giving exceeded that of the year of the event.

2001 Factors that May Alter Historical Trends or Affect Giving

"Although historical patterns can shed some light on giving at times of crisis, because there are so many separate and unique factors that may influence giving this year, we must be careful about extrapolating too strongly from historical data and be cautious about forecasting what may happen," said George C. Ruotolo, CFRE, chair of the AAFRC Trust for Philanthropy.

* The events of September 11 and their aftermath are unlike anything that has happened before, and they may have unpredictable effects on people’s behavior, including their giving.

* The economy was already teetering on the brink of recession (1.3% growth in the first quarter and 0.2 % growth in the second); the attacks and their aftermath may push it into recession. Research done by the Center on Philanthropy for the AAFRC Trust for Philanthropy’s quarterly Giving USA Update shows that this would have an adverse impact on philanthropy. Giving over the past 40 years has grown at an average annual rate of 7.6% but during recessions, it averages about 5% growth. Giving increased 6.6% in 2000. Historically, giving continues to grow during recessions, albeit at a slower rate of growth.

* A significant outpouring of support for relief efforts from donors making small gifts, perhaps $25-$100, is anticipated. These gifts are likely to be relatively short-term and to have little impact on total giving or on distribution of giving (i.e., what proportion goes to education, health, the environment, etc.) this year.

* Overall, however, there may be a small change in distribution. Some subsectors, such as religion, may remain largely unaffected. Some organizations may see a decline, while others helping people affected by the attacks may see a significant bump up, as individuals, corporations, and foundations shift some of their giving to relief. Some net new giving also may be created by intense awareness of acute needs and Americans’ desire to respond.

* Many foundations have made substantial grants for relief in the first days following the attacks. Foundations are required to pay out 5% of their assets annually. Some may pay out more than 5% this year as a one-time event, while others may reallocate among their other giving to stay around 5%.

* Similarly, corporate giving has hovered around 1% of corporate pre-tax profits for most years in the past several decades (it has been above 1.4% in only six years since 1970 and has never exceeded 2.1%). Some corporations will reallocate their giving within their usual giving levels to help those affected by the events of September 11. Others may perceive this as a "personal" attack on American business and react with a substantial increase in giving—at least on a one-time basis.

"Our findings from this evaluation and other studies show that both the stock market and giving are resilient," said Eugene R. Tempel, executive director of the Center on Philanthropy. "While this is a unique situation, in the past Americans have shown a remarkable capacity to recover from adversity, both economically and spiritually, as measured by the stock market and giving."

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