Faltering Economy Starting to Affect Charitable Giving, Studies Find

April 17, 2008 | Read Time: 6 minutes

A pair of new studies released in recent weeks show that the faltering economy is beginning to slow contributions to a range of nonprofit organizations across the United States.

The studies found that:

Donations to charity in 2007 grew by less than they had in years past, with many fund raisers concerned about how the economic downturn will affect giving this year,

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according to a survey of 398 organizations released last month by the Association of Fundraising Professionals at its annual conference in San Diego. While almost two-thirds of charities raised more money in 2007 than in 2006, the size of their gains dropped last year, the survey found.
Direct-mail appeals sent by charities are facing a slowdown in donations and are failing to keep pace with inflation, according a study by Target Analytics, a Boston consulting company.

The fund-raising association’s survey found that donations grew by less than 20 percent at 38 percent of organizations. In 2006, 29 percent of the groups had gains that were less than 20 percent.

Nine percent of charities said they achieved fund-raising gains of more than 50 percent in 2007, compared with the 23 percent of organizations that reported gains that high in 2006.

Over all, 65 percent of charities surveyed by the association raised more money in 2007 than in 2006, while 24 percent raised less and 11 percent raised about the same amount, according to the survey. Small groups reported more significant problems than large ones.

Gloomy Expectations

Asked how their organizations will fare in 2008, 58 percent of fund raisers said they expected their organizations to raise more money in 2008 than in 2007, the lowest level of optimism since 2002, when gifts to many charities fell sharply after technology stocks plunged and the country reeled from the 2001 terrorist attacks.

“It looks like 2008 could be one of the most challenging years charities have seen in some time,” said Timothy R. Burcham, chairman of the Association of Fundraising Professionals.

The slowdown in the nation’s housing market and economy that occurred in the last quarter of 2007 triggered the drop, said Paulette V. Maehara, president of the fund-raising association. Last year “seemed to be a typical year for fund raising until the environment changed dramatically at the end of the year with the mortgage crisis,” she said, adding that it is not yet clear whether giving will continue to decline.

“The million-dollar question is, Do these decreases represent a return to normalcy from the very strong year we saw in 2006, or the beginning of a much bigger slide in fund raising and giving?,” she said.

The answer will depend on whether the economy improves, she said. “If the housing crisis levels off, gas prices decrease, that could ease tensions a little bit.”

Online Donations Slow

Nearly every technique charities used to raise money grew slowly last year, the association’s survey found. Direct mail, telemarketing, big-gift solicitations, and special events all grew at slower rates, with the most severe decline affecting online fund raising, where 26-percent fewer respondents said online returns were higher in 2007 than in the previous year. Planned gifts were the exception to the trend: 54 percent of charities said they raised more money through bequests and charitable remainder trusts last year, a slight increase compared with 52 percent of organizations in 2006.

That’s the second year in a row that charities have reported substantially more success with planned gifts. For the previous five years, the survey showed only about 40 percent of charities annually were able to increase the amount of money they raised through planned gifts. The planned-giving increases could be part of the intergenerational transfer of wealth that has been predicted in studies over the past several years, Ms. Maehara said.

The survey found a growing divide in fund-raising achievements between small groups and large ones.

For example, 70 percent of charities with budgets of at least $5-million raised more money in 2007 than in 2006. Meanwhile, just half of organizations with budgets of $500,000 or less raised more in 2007.

Full results of the survey are expected to be available in May, association officials said.

Direct Mail Declines

Separately, the study by Target Analytics, which looked only at direct marketing, found that direct-mail donations to 70 charities grew by a median of 1.5 percent, meaning that half the groups achieved greater increases and half fared worse. Groups did not keep up with the 4-percent rise in inflation last year, or match the 2006 inflation rate of 2.8 percent.

What’s more, charities are facing more trouble getting repeat gifts from donors and attracting new supporters. But many groups successfully raised more money from individual donors than they have in the past.

Those new findings were included in the latest release of the study, which Target conducts four times a year. The 70 large organizations that provided data collected 64 million donations of $4,999 or less from 35 million donors, mostly in response to direct-mail solicitations. Their gifts totaled more than $1.8-billion.

The participating organizations represent a range of missions, including animal welfare, the environment, health, social services, international relief, and advocacy.

The number of people who made gifts to those charities declined by a median of 1 percent in 2007; that was on top of a median decline of 1.4 percent in the total number of contributors in 2006.

Perhaps more worrisome, however, is the slippage in the number of new donors.

Organizations in the survey recruited a median 5.1 percent fewer new donors. That followed a 10-percent decline in new contributors in 2006. Only 29 of the groups in the survey were able to increase the number of people supporting them last year.

The amount of money that each recipient of a solicitation contributed grew by a median of 4.1 percent, following a median 3-percent increase in 2006.

Some types of charities did better than others last year. Animal-welfare groupss won a median increase of 7.2 percent in the number of donors who supported their causes, more than any other type of group, and a median 30.5-percent increase in new donors.

Target analysts noted that the performance of these groups may have benefited last year from the attention animal-protection groups received after the indictment of the professional football player Michael Vick on dog-fighting charges in July 2007.

In addition, analysts said, the improved performance represented a rebound from 2006, when animal-rights groups suffered as direct-mail donors concentrated on sending aid for the victims of Hurricane Katrina and the tsunamis in Southeast Asia.

All other types of charities in the survey, however, reported a decline in new donors.

Environmental groups also fared better than other types of organizations, even though their number of new donors declined by a median of 3.7 percent. They reported the highest increase in total contributions, a median rise of 5.2 percent, and their total number of donors held steady.

Nonprofit groups with the biggest fund-raising challenges included human-service organizations, the only type of charity for which the size of individual gifts declined, by a median 1.4 percent, and international relief organizations, which recruited a median of 20.3 percent fewer donors in 2007.

Advocacy groups, however, reported the worst results of any type of charity in the survey. They recruited a median 20.5 percent fewer new donors last year, on top of a 12.8-percent decline in 2006, while the total number of donors also dropped by a median of 10 percent. They were also the only type of charity that suffered a drop in total contributions last year, falling by a median of 0.9 percent.

While the sluggish economy is one reason behind the slowdown, other trends continue to hack away at the money charities receive from direct mail. For example, the number of people who grew up before and during World War II is dwindling, and those people have typically been more responsive to direct mail than younger people.

A complete summary of the Target study is available online.