Donations by the Wealthy Dropped Sharply in the Recession, Study Finds

Gifts to charities from wealthy Americans plummeted by an average of nearly 35 percent from 2007 to 2009, according to a new study released today on the giving habits of the rich.

Affluent donors who had donated an average of more than $83,000 in 2007 gave only about $54,000 on average two years later during the heart of the economic downturn, according to the study by Bank of America Merrill Lynch and the Center on Philanthropy at Indiana University. Health-related charities took the biggest blow, as donors cut their giving to such organizations by nearly 67 percent.

The study is based on responses to a survey about giving and philanthropic habits in 2009 answered by 800 households that earned at least $200,000 a year or had liquid assets of at least $1-million. The average wealth of people in the study was nearly $11-million each. Similar surveys were conducted in 2005 and 2007.

As in past studies, almost all—98 percent—of the respondents reported making charitable gifts, and about two-thirds said they supported the same organizations or causes year after year. But average giving as a proportion of total income dropped slightly from 2007 (11.1 percent) to 2009 (9.1 percent), and the average total giving tumbled by 34.9 percent after adjusting for inflation.

The median drop in gifts from 2007 to 2009 was 7.6 percent after inflation is taken into account.

Volunteering Rises

At the same time, the study found an uptick in volunteering among wealthy Americans. More than three-quarters of the wealthy donors volunteered at least some time last year, an increase of nearly 4 percent from two years earlier. And the average number of volunteer hours rose from 241 to 307.

Amid strenuous political debates about taxes, the study also found that affluent donors are increasingly sensitive to the effect of tax policies on their charitable giving.

Two-thirds of wealthy Americans said their giving would decrease if income-tax deductions for charitable donations were eliminated, including nearly 19 percent who said their gifts would drop “dramatically.”

In 2007 less than half of wealthy donors said that their gifts would fall if such deductions were eliminated. As for the estate tax, 43 percent of the wealthy donors-up from 36 percent in the 2007 poll-said they would donate more money if they were not subject to it.

Claire Costello, an executive in Bank of America Merrill Lynch’s philanthropic management group, is not surprised that feelings about tax policies are heightened these days. But, she says, she doesn’t expect it to have too much of an impact on philanthropy.

“Tax considerations are not a huge indicator of people’s decisions to give,”
she says. “They may impact the structure of gifts but not whether or not donors are going to give. Those other factors are what we are learning more and more about.”

Frequent Solicitations

Along with gathering data on gifts and volunteering, the study examined the reasons and the ways that affluent households decide to give.

The three reasons donors most often cited as a major motivation for donating to a charity:

• They felt their gifts could make a difference.
• They felt financially secure.
• They believed the charity receiving the gift was run efficiently.

Giving as a result of a solicitation fell as a motivator, cited by only 31 of the wealthy donors in 2009, down from 48 percent in 2007.

Similarly, too-frequent solicitations or requests for an inappropriate amount was by far the most cited reason donors gave for no longer supporting an organization. Other top reasons were that the donors decided to support other causes or that their “household circumstances changed.”

“What this means is that more than ever, nonprofits should be careful to tailor their level of requests, know their donors, and engage them at the right level,” says Una Osili, director of research at the Center on Philanthropy. “Nonprofits always need to be sensitive about the individual circumstances of donors, but in these uncertain times there needs to be even more sensitivity about people’s concerns about their financial situations.”

How Couples Give

For the first time, the survey asked questions about household decision making, and it found more collaboration than expected, Ms. Osili said.

More than two out of five couples confer with their partner or spouse and then make a joint decision about philanthropy, and about one quarter confer before one person usually makes the final decision. More than half the couples said they contributed to causes both partners found important.

“In the past, there may have been a tendency for nonprofits to determine who has made the money or controls the money and focus their attention there,” Ms. Osili says. “This research suggests that it’s increasingly important to involve both partners in building relationships and to engage various members of the household.”

Both Ms. Osili and Ms. Costello say it is also critical for charities to maintain close ties to affluent donors even when the donors may not have the financial resources to give. The survey’s results, they say, demonstrate that wealthy Americans remained committed to helping their favorite charities even as donations fell.

The researchers point out, for example, that donors stepped up their volunteering, focused giving on much-needed social services, and gave a big share of their donations to help charities pay their operating costs rather than earmarking it for specific purposes.

Changes in Giving Patterns

Affluent donors changed their giving patterns somewhat from 2007 to 2009, according to the survey, to respond to increased demand for social services among those hardest hit by the recession. More than 84 percent of wealthy people gave to organizations that work in the field of “basic needs.” That’s up from about 75 percent of respondents in 2005 who reported giving to such groups.

Still, the amount of money dedicated to basic needs last year was relatively small—less than 5 percent of total gift dollars.

The largest share of giving—22.1 percent—went to foundations, trusts, and other similar instruments for giving, such as donor-advised funds. The second largest share went to educational organizations (19.3 percent), followed by religious organizations (13.3 percent).

The smallest share of giving as reported by high-net-worth households went to international causes (2.8 percent) and to groups that work on the environment or animal care (3.5 percent).

‘Keep the Lights On’

More than 55 percent of the survey’s respondents made their largest gift in 2009 to support the general operations of a nonprofit group. Only about 14 percent awarded their largest gift to a capital project—down from nearly a quarter who did so in 2007; 11 percent made their largest gift to support the long-term needs of an organization, a drop from more than 37 percent in 2007.

“These donors knew that it was time to keep the lights on, the doors open, and the phones ringing, and they responded to that,” Ms. Costello says. “The challenge moving forward will be to also make sure donors are responding to the critical needs for sustainability and growth.”

A growing number of wealthy donors also responded to nonprofit organizations last year by volunteering more of their time. Nearly 40 percent reported volunteering for at least 200 hours in 2009, a jump from the 27 percent who reported that amount of work in 2007.

Significantly for nonprofit groups, too, the more donors volunteered, the more they gave. Wealthy people who did not volunteer donated an average of about $46,000 last year. Those who volunteered 101 to 200 hours gave an average of nearly $49,000, while those who volunteered more than 200 hours donated an average of roughly $76,000.