Philanthropy in the United States: Our Assessment

To regularly evaluate our philanthropic strategy we try to stay abreast of key trends and innovations which can impact our efforts and objectives, positively and negatively. These topics and our opinions are an iterative process that will change as conditions change and more data becomes available. The following discussion points represent several forces affecting philanthropy in the US, as well as our assessment of how they relate to us.

The Economy and Financial Markets Play a Key Role

Fortunately, the U.S. economy and job market has been healthy for the past few years. This fact is a positive for charitable donations as indicated by Charity Navigator, which shows that from 2010–2015 “the average increase in giving to charitable causes (3.6%) is greater than the growth of GDP (2%).” Notwithstanding this encouraging fact, it is critical to remember that a smaller percentage of our population have enjoyed the benefits of this economic expansion. Worse than simply missing out, more Americans are driven to the point where they become forced to be recipients of charitable help. A 2012 survey from GuideStar supports this fact, revealing that the negative ramifications caused by the recent recession were due to individual donors giving less than usual while concurrently facing a higher demand for their services. During tougher economic times, the gap between available resources and needs will widen. Potentially even more volatile than shifts caused by the economy are those linked to financial markets. When the markets are buoyant and investors are exuberant and optimistic, there tends to be an increase in giving whereas the real and psychological impact of down markets can have a material impact on charitable inclinations.

Source: Charitable Giving

Giving Is Robust but Not Evenly Embraced

In 2015, charitable giving reached an all-time record, with a total of $373.25 billion donated over the course of the year. 71% ($264.58 billion) of that came from individuals, while foundations, corporations, and bequests contributed $58.46 billion, $18.45 billion, and $31.76 billion, respectively. While organizations serving the major philanthropic categories such as education, the arts, health, and human services increased across the board, nonprofits with religious affiliations continued to be a primary recipient, with $119.3 billion or 33% of the year’s total.

While these numbers are highly reassuring, deeper examination highlights the fact that, according toChuck Collins of the Institute for Policy Studies, the rise in charity donations is mostly due to pledges from to wealthy mega-donors as opposed to broad based support across all segments. In fact, outside the mega-donors the charitable commitments of the middle class have meaningfully declined over the last decade.

Businesses are Playing a Greater Role in Individual and Corporate Giving

Businesses have also made it easier for individuals to donate to the charity of their choice. According to a survey from America’s Charities, workplace giving, meaning the opportunity for employees to automatically contribute a portion of their paycheck to a nonprofit, “is the most common component of employee engagement,” and accounts for an average of $4 billion in total donations per year. What’s more, 65% of Fortune 500 companies and 28% of small to mid-size companies have matching programs, thus doubling each employee’s donation.

Businesses as a whole are ramping up their philanthropic efforts both in terms of amounts and thoughtfulness. According to Fortune Magazine, the 20 most generous companies donated $3.5 billion in cash in 2015. Some are far more charitable than others, like Goldman Sachs, who in 2015 gave away 3% of its pre-tax profits compared with a median of 1% for all Fortune 500 companies. There is no set model for corporate philanthropy. Sometimes leading companies pursue specific passions like Costco’s emphasis to improve the accessibility and quality of healthcare for children in their communities or Starbucks’ focus on helping “opportunity youth.” Corporate giving doesn’t need to be limited to cash. Leading pharma companies actively donate drugs to impoverished regions of the world and technology giant Microsoft donates its products in a self-proclaimed effort to “help people overcome great challenges.”

The Increased Visibility of Philanthropic Role Models

Many of today’s most iconic business leaders are devoting serious attention and resources to their philanthropic passions. Many business leaders and entrepreneurs are seeking to apply their business acumen to conquering the challenges important to them. The combination of their visibility along with the scale and audacity of their mission is gaining attention across a wide variety of mainstream media. One of the most well-known accounts of philanthropic role models is the enormously successful Giving Pledge launched by Bill Gates and Warren Buffett in 2010. Today, the individuals following in their footsteps have already earmarked over $350 Billion to be distributed to charities over the next several decades. While the members of the Giving Pledge likely get more notoriety than others by virtue of their scale, it’s important to remember that the increased visibility of philanthropic endeavors applies as well to non-multi billionaires who are making meaningful gifts to impact change. The more stories and examples of philanthropic role models, the greater the likelihood that donors and volunteers of all capacities can be motivated and guided.

The Growth and Appeal of the Crowdsourcing Model

In general, the rate of online giving has gone up both in terms of one time contributions and monthly donations. Not only are individuals donating to their favorite organizations online, they’re also donating through crowdsourcing. Before sites like GoFundMe launched in 2010, the closest thing to crowdfunding was holding a bake sale or knocking on doors around town. Now, crowdfunding for independent and personal causes has become a standard method of sourcing donations for a target individual or group. With many campaigns starting to raise money to cover medical expenses, higher education costs, and home repairs after serious weather damage, sites like GoFundMe have proven to be a means for receiving basic needs.

According to Charity Watch, $34 billion was donated through crowdfunding platforms in 2015, up from $16 billion in 2014. One reason for the appeal of crowdfunding is that it provides a level of intimacy with the recipient that is unmatched by many nonprofit pledge drives and calls for donations. And through email and newsletter updates, the donor feels more involved and perhaps better about their decision to contribute.

What does this mean for us?

• Despite the best hopes and intentions of our political leaders, we believe it is unlikely for the economy and job situation to perpetually remain this robust. At some point the financial markets will pause, or worse, correct. This reversal will inevitably send psychological shockwaves to many philanthropists, especially more recent ones. Most donors, save for the most committed and educated, will get “spooked” and likely dampen or pause major charitable efforts just at the time when their gifts will be increasingly needed. We need to encourage the charitable organizations we are associated with to embark on major fundraising drives while the financial markets and economy are cooperating. Moreover, we need to be thinking longer term to ensure funds are available regardless of the economy.
• We can’t simply rely on the billionaires to satisfy all the charitable requirements that our communities face. Sure, this elite group can undoubtedly accomplish monumental achievements like Gates’ quest to eradicate malaria, however, we believe our society is better off in the short and long term when philanthropic underpinnings and activities permeate all levels of society. Not only do smaller amounts from a massive population often exceed what almost any individual can donate, but many of today’s philanthropic leaders might not be as committed had the proper values not been instilled earlier during a humble more modest stage of their life. As an example, many philanthropic leaders like Michael Bloomberg became committed to charity far before achieving great financial wealth. As he recounts, his first gift was a mere $5 but it engrained a philosophy of “giving what you can” that continues to stay with him today. We need to foster charitable activities amongst a wide audience and not just the super wealthy. Where possible, we want to help cultivate, educate and motivate potential future givers. Ideally, it would be great to nurture one who goes on to be a philanthropic leader and maybe even member of The Giving Pledge.
• As consumers we can vote with our wallets. We can reward or favor those companies whose charitable efforts we admire and are aligned with as well as pushing other less philanthropic organizations to step up their giving back. Of course we recognize there may be ulterior motives to a company’s charitable efforts but from our perspective it is pretty black and white — one either subscribes to a philanthropic mindset or they don’t. All things being equal, we would rather support those who give back regardless of their reasoning.
• We believe that many leading philanthropists give because it’s in their hearts, and not because they want to see their name on buildings or in headlines. If this is the case it raises the question of why these individuals permit, support or maybe even encourage the corresponding notoriety versus giving quietly or maybe even anonymously? We believe the willingness to lend one’s name or share their story is based on hoping to inspire others to join them in being philanthropic in general or supporting a specific cause. That said, we recognize that some individuals are motivated to give primarily because of the status and recognition it garners. While this drive is not who we aspire to be, we do acknowledge it.
• The rapid growth and trajectory of individualized crowdsourced philanthropy is undeniable, however, we question whether this trend is sustainable or applicable. Crowdsourcing can’t circumvent the strict rules that charities need to be comply with and one must keep their eyes open to crowdsourcing based fraud. Notwithstanding this view, a charity should always be examining new and complementary sources of funds and how such availability incorporates into their overall strategy. At this point our view is to follow in the years ahead how crowdsourcing might impact and benefit the causes we care about.

The need for private philanthropy is not likely to disappear anytime soon. In all likelihood, the opposite will occur. Philanthropy will play an increasingly important role in our society as the need increases and government support wanes. As a result, we want to do our best to ensure our efforts in this regard are being as efficient and impactful as possible and that requires keeping keyed into and adapting with current trends and the overall climate.

This post was originally published on GreensteinFamilyFoundation.org

About Jeff Greenstein
Jeff Greenstein is an American entrepreneur and private investor based in Seattle, Washington. He is currently the President of YIS Capital, an active philanthropist and passionate dealer and collector in contemporary art. Related to these interests, Jeff is a co-founder of the Greenstein Family Foundation and the Greenstein Lab.