It has been my experience working with generous people, that many donors feel a profound sense of responsibility to give back to their communities. In the recent 2023 Bank of America Study of Philanthropy, giving was motivated by the desire to “give back to your community” either sometimes or always by over 89% of survey respondents. Many donors arrive at this sense of obligation from the teachings of their faith. There is a frequently quoted passage from the Bible found in Luke 12 where Jesus is teaching his disciples through the use of a parable. As he encourages them to be ready for his return, he leaves them with an admonition in verse 48 that is often paraphrased as, “To whom much is given, much will be required.” Many donors view their wealth as a blessing that comes with an increased responsibility to share it with others.
This internal motivation for wealthy people to voluntarily share their resources with others is becoming increasingly important, especially in a year like 2023. Though the financial markets are slowly recovering from the sharp declines experienced in 2022, incomes are not rising fast enough to keep up with inflation, and that has a double-negative effect on charities. Fewer families are left with disposable income to donate to charities, while an increasing number of families are reaching out to charities for assistance. This creates a situation in which fewer people are called upon to support charities at ever-increasing levels. Despite an overall decline in charitable giving in 2022, wealthy donors, who have adequate disposable income, are doing what they can to meet the challenges in 2023.
According to the Giving USA annual report released in 2023, “The strong labor market and low unemployment rate suggest that many households were stable in 2022, but the rising cost of goods, declines in disposable personal income, and soaring interest rates may have required households to make tough decisions about charitable giving.” In fact, according to the report, giving by individuals, which is always the largest source of giving, experienced a 13.4% decline from 2021 to 2022 in inflation-adjusted dollars. This decline continued a 40-year decline in giving by individuals and there is no indication that giving in 2023 will turn this trend around.
Fortunately, it appears that many individuals over the last 40 years have shifted their philanthropy to giving vehicles such as donor-advised funds and private foundations. Giving from foundations, which is giving directed by individuals through private foundations or donor-advised funds, has increased from 6% to 19% since 1983, while direct giving by individuals has fallen from 81% to 67% over the same period. When taken together, foundation and individual giving has hovered between 86% and 88% of total annual giving over the last 40 years. Some people are concerned about the trend toward giving through private foundations or donor-advised funds, but both donor-advised funds and private foundations are merely vehicles used by individuals to reach their charitable goals.
The added advantage of giving through a private foundation or giving through a variety of different types of funds established at a community foundation is the potential for more sustained annual giving over time. Annual giving by individuals is often significantly affected by market conditions and personal circumstances, as we saw in 2022 while giving through private foundations or endowed funds is more predictable and reliable. Increased foundation giving over time is an indicator that individuals are planning for their giving to be sustained, not diminished over time.
Individuals can choose from a variety of giving styles including making direct annual gifts to charities or utilizing vehicles such as private foundations, endowments or donor-advised funds to create a steady stream of annual support for their favorite charities. No matter how you give, it is important to understand the vital importance of your giving at this time in history. The current economy is creating challenges for many families, and if you find yourself in a situation where you can give to help others, you should consider the opportunity to give a little extra this year because you know others cannot. Whether you are motivated by your faith, out of a sense of gratitude, or obligation, digging a little deeper to help others in need this season may be your next best opportunity to Give Well.