After low inflation for more than three decades, many Americans are learning for the first time the pernicious effects of high inflation on their everyday lives. Leading many news stories is the record price to fill up our cars and the ripple effects of high fuel costs on most items we purchase for daily life. In response to higher inflation over the past fourteen plus months, many Americans have rightly changed their spending and saving habits.
This begs the question: What will be the impact of high inflation on charitable giving? And, if donors give less in high inflationary periods, then what should nonprofit leaders and gift officers do to stem donors’ decline in giving? But first, it is important to understand the context in which we find ourselves.
According to Giving USA 2022, giving remained strong last year for a total of $484.85 billion, which was a 4 percent increase in current dollars. However, in inflation-adjusted terms, giving declined in 2022 by 0.7 percent. While the top-line number was robust, nonprofit leaders should prepare for the possibility of a decline in giving in 2022.
Inflation was at a 39-year high of 7 percent at the end of 2022, and the inflation rate has continued to climb every month in 2022 for a high of 9.1 percent in June. High inflation reduces one’s purchasing power and thus decreases one’s discretionary income. When donors have less income, then they are inclined to give less – particularly small-dollar donors. High inflation also causes many donors to focus on asset preservation and strategies to help maintain long-term financial independence.
The 1970s was a high inflationary decade that included year-over-year inflation spikes not dissimilar to 2021 and 2022. During the high inflationary period of 1972-1975, giving fell by almost 9 percent in inflation adjusted terms. This data point alone should prompt nonprofit leaders and gift officers to pause to consider modifications to their fundraising practices in the near-term as inflation persists. After all, many donors’ needs have changed over the past fourteen months.
High inflation can also have significant psychological effects on donors, which impacts their willingness to make gifts, in general, and can impact the size of their gifts, specifically. Dunham+Company publishes an annual Donor Confidence survey and released its latest findings on 27 June 2022. The report found that 63 percent of donors said that they are being cautious with their giving, which is up from 59 percent the previous year. Interestingly, the three leading reasons that donors expect to give less in 2022 are their financial situation (41 percent), the economy (13 percent), and inflation (35 percent).
The same report found that 53 percent of donors are unsure about the economy, or they believe that it will decline in the coming year compared to 36 percent expressing the same sentiments about the economy last year. This should come as no surprise to any reader given that the University of Michigan Consumer Price Index is at an all-time low of 50.0 percent which is a year-over-year decline of 41.5 percent. The decline in the stock market in 2022 joined with high inflation has certainly impacted donors’ confidence in the economy for the near-term.
It is understandable that a majority of donors express caution regarding their 2022 giving.
While the above data indicates a bumpy ride ahead for giving in 2022, nonprofit leaders and gift officers must proactively work to mitigate the decline in giving to their organizations. The following are seven activities to implement in 2022.
- Focus on the Baby Boomer generation. Boomers are the wealthiest generation in US history and hold approximately $70 trillion in assets. Giving from assets such as appreciated stock, rather than income needed for day-to-day expenses, can diminish the impact of inflation on their philanthropy.
- Provide well-crafted impact reports to current donors. Include stories of individuals impacted by donors’ generosity. We usually find stewardship gaps in gift planning program audits conducted for clients, regardless of an organization’s size. Giving USA’s Leaving a Legacy report found that 75.5 percent of donors reported that an organization’s impact on those served was one of their top three reasons they included a nonprofit as a charitable beneficiary. Gift officers must tell donors exactly how their gifts have made a difference in the lives of those served by the organization they support – not in a generic way but through story and with specificity. Highlighting how inflation is hurting those in need should be a priority to encourage gifts to counteract this negative impact of rising prices.
- Develop a set of relevant donor discovery questions. These questions should be designed to help donors – and gift officers – fully understand their needs and goals. Income needs, asset preservation, tax-effective giving, inter-generational wealth transfer goals, and a desire to make the greatest impact based on their needs and capacity to give all point to philanthropic solutions.
- Broaden an organization’s gift opportunities for donors. Strive to make your nonprofit clients the repository of all types of gift instruments including, appreciated stock, real estate, farmland, DAFs, second homes, business assets, Qualified Charitable Distributions, split interest charitable trusts, CGAs, and bequests. Ensure that clients and their donors understand that making gifts of cash from discretionary income is often the least tax-advantaged gifting strategy.
- Offer blended gift strategies. Donors with estates valued up to $10 million will likely focus on income and asset preservation during a high inflationary period. Allowing these donors to have the greatest impact through a blended gift will further cement their affinity for your nonprofit clients. Donors could make a current gift through a Qualified Charitable Distribution joined with a beneficiary designation from their IRA. These donors would still have control over the whole of their assets as they continue to support their preferred nonprofits. Or higher capacity donors could make a gift of appreciated stock – particularly a low-paying dividend stock to a current CRUT joined with a percentage gift from their IRA. A good solution has now been provided to address donors’ need for more income, and they still have control of nearly the whole of their assets.
- Increase knowledge of life-income gifts. This is especially important for some of your clients’ higher capacity donors for whom charitable remainder trusts (CRUTs) may be appropriate. Giving USA’s Leaving a Legacy report found that donors who funded charitable trusts had estates valued at $10 million or higher. This bears out in Heaton Smith’s legacy and charitable estate planning services, with some exceptions. And while gift annuities pay fixed income not adjusted for market growth, many donors find security in life-time income backed by a charity. Also, gift annuity rates increased as of July 1. See the website of the American Council on Gift Annuities for the new rates at www.acga-web.org.Importantly, when discussing a complex solution to a donor’s need(s), gift officers should articulate the benefits of a life-income gift to donors and to your nonprofit clients and avoid use of highly technical language.
- Strengthen stewardship practices. Not only will proper stewardship practices prevent donors from slipping through the proverbial cracks, but they will ensure that gift officers engage in meaningful conversations with each donor in their portfolios sometime in 2022 – a year of high inflation, and a year in which some donors’ needs have changed.
High inflation is on the minds of donors, even those who are wealthy. If nonprofit leaders and gift officers continue “business as usual,” then their organizations will likely experience a decline in giving this year. However, if nonprofit organizations focus on the above activities and offer the best philanthropic solutions for each donor, then they will help limit the effects of 40-year high inflation on their organizations.
