By: Benefactor Group

For just the 4th time, Giving USA reported a decline in year-over-year charitable giving. Should we worry? Generally, giving grows. For more than 5 decades it has grown an average of 6% per year. Compared to volatile sectors like real estate or energy, growth in giving seems resilient over time.

Even the headwinds of a pandemic and social tumult in 2020 and 2021 didn’t diminish charitable giving. Total giving grew 9% and 4% in those years (in current dollars). In the midst of challenging economic circumstances, there was an outpouring of generosity. So is the current decline just a temporary blip in the inexorable rise of philanthropy? Or is it the first signal of emerging cracks in the foundation of charitable giving.

Should we worry?

There are fault lines in the philanthropic landscape. The most troubling is a steep decline in the percentage of American households that give each year. Just a few decades ago, more Americans gave (65%) than voted (58%). But household participation has declined steadily for two decades: today, fewer than half of all households report making a charitable gift each year.

Despite declining participation, giving grows because high net worth households[1] have increased the amounts they give. Or, as Dr. Una Osili of Indiana University’s Lilly Family School of Philanthropy says, “Dollars up, donors down.” 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.

There is debate about 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 vast majority of nonprofits doing good? Or perhaps we should examine today’s sophisticated fundraising operations that shower attention on big givers, with mere 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; far from the 5% that a founder of Target Stores promoted during his lifetime as good for the company and good for the community. Without policy intervention (i.e., corporate taxation), there’s little chance of a rebound to the 2% of pretax profits given in the mid-80’s. Giving by foundations is largely shaped by the giving behaviors of the wealthy, who have turned to closely-held family foundations and Donor Advised Funds as favored platforms—a parallel to the phenomenon of top-heavy giving by individuals.

Why does it matter?

Concerns about the direction of philanthropy fall into at least three categories. Two illustrate the risks to the nonprofit sector and the broader economy. Because nonprofit organizations represent 5.6% of GDP and employ 10% of the nation’s 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 pressures on the nonprofit sector) and the intrinsic value of inclusive—rather than exclusive—models of social generosity.

  • Donor concentration creates risk. There is 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 ever-increasing concentration among their top-end donors. Should any top donor abandon the organization, it may take years to nurture new supporters to provide comparable revenue.
  • The eventual, inevitable decline. Will growth in charitable giving ultimately hit a ceiling because of the shrinking pool of donors? Perhaps there’s a lesson from the equity markets: when a stock’s price continues to rise even as the volume of trades declines, most pundits observe that it’s time to sell the stock. Just as “volume is fuel” for stocks, a growing pool of contributors is necessary for sustained growth in charitable 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?

Across the sector, there are efforts to study generosity and increase Americans’ understanding of philanthropy with a goal of increasing overall participation. These point to specific steps that could democratize charitable giving.

  • Embrace broader definitions of “philanthropy,” to include nonmonetary contributions (e.g., time, talent, testimony, ties), and forms of generosity not recognized by current counting methods, such as mutual aid, giving circles, and direct support for individuals.
  • Debunk the “Overhead Myth,” with its single-minded focus on short-term efficiency at the expense of longer-term effectiveness. This (mis)calculation leads donors to overlook organizational impact and causes many fundraisers to focus exclusively on major gifts with their higher immediate roi and to overlook everyday donors.
  • Adopt tax policies that convey the value of 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 practices that offer major givers undue influence or privilege.
  • Adjust fundraising tactics to reduce the reliance on “big gifts” and build a pipeline of engaged donors of all means. This could mean accepting a temporary increase in the cost-per-dollar-raised.

Philanthropy fuels nonprofit organizations, which serve Americans in myriad ways. Human service agencies ensure that basic needs such as food, clothing, and shelter are provided to 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 organization.

Beyond the common good served by individual nonprofit organizations is the greater good for society. “At the heart of our democracy is an engaged citizenry, willing to dedicate time and resources to solving problems. In the process these everyday givers and volunteers build social capital, advance citizen agency, and strengthen our communities’ capacity to solve,” says Jane Wales, a vice president of the Aspen Institute.

This inclusive approach can build resilience, reduce risk, and ensure that philanthropy can continue to fuel the causes that serve, unite, and inspire.