July 15, 1999 | Read Time: 7 minutes
We are in the midst of a revolution. No, not the changes brought about by the Internet, though that is a part of it. This revolution is in the ownership of assets, and it will have a profound effect on the ability of charities to thrive in the decades ahead.
In short, asset ownership is rapidly being democratized. With the explosion of interest in the stock market over the past two decades, business owners and executives no longer are the only ones who have the assets from which to make large gifts. Financial assets now are owned by literally tens of millions of Americans, most often in the form of stocks and mutual funds.
What’s more, growing numbers of employers, especially in the high-technology industry, are paying workers in part with stock options and other forms of equity in their companies. As a result, secretaries can become millionaires overnight, and in many towns the local Home Depot manager can afford to live in a mansion.
Just as democratizing the ownership of automobiles changed personal mobility, and democratizing homeownership and college educations after World War II changed social values and created vast new wealth, democratizing the ownership of assets will profoundly alter the economic, social, political, and charitable landscape.
For charities, that trend means that annual campaigns based on donor incomes will become less important as a revenue source, while major gifts based on donor wealth will continue to grow in significance. Charities that grasp that reality will develop the connections, management, and fund-raising skills — and the budgeting practices — that will serve them well in the years ahead. Conversely, charities that fight the trend will wage a battle just to survive, a battle that will sap their energies and leave them wondering why they cannot develop the support they need, even if they provide services that are efficient and effective.
That is not to say that there is no place for gifts based on donors’ income. The weekly payroll deduction, the crisp new bill dropped in the Sunday collection plate, and the annual charity membership charged to a credit card will continue to play a major role in financing non-profit groups as far into the future as one can imagine. But the relative importance of gifts made out of income is diminishing as major gifts based on assets are growing.
Charities looking to capitalize on gifts of assets need to understand that the rich give differently — and that the logic behind their style of giving is reaching down to many middle-class households and all but the spendthrifts among the burgeoning upper middle class.
In 1996, the latest tax-return data show, Americans who itemized deductions on their income-tax returns gave $66-billion in cash and $21-billion in items such as stocks, art, and real estate to churches and charities — a ratio of $3 cash to $1 of personal property. But among the 111,000 households with incomes of $1-million or more, cash gifts totaled $5.8-billion, while gifts of property were worth even more: $7.5-billion.
That’s because the rich understand how gifts of assets are a much better financial deal than are gifts from income. Write a check and you get a deduction, but give an asset that has soared in value and you avoid the capital-gains tax and win an income-tax deduction. Give through payroll deduction and you pay every week in good times and bad, but give from assets through a donor-advised fund or similar vehicle and you can bunch your gifts to maximize your income-tax break.
That many charity executives do not understand the economics behind asset giving was brought home to me in a conversation with an official of a national charity who has worked in the field for 25 years and has taught fund-raising strategies. He did not understand the tax significance of giving stock instead of cash. And he said he did not even think his organization would know what to do if a donor offered it a stock certificate.
That lack of knowledge about asset-based giving is a serious failing — and is going to have an especially detrimental impact on charities run by and for the poor and the working class. That is because the boards and staff members at those charities are the least likely to have personal, practical knowledge of owning assets, or strong ties to those who do.
Taking advantage of the benefits of getting donors to give based on their assets does not require a sophisticated planned-giving operation. What it does require is getting people to give now instead of planning to give when they die, and persuading them to sign a simple document called a “stock power” instead of a check. And, a charity needs to supplement its bank account with a brokerage account so it can immediately convert gifts of securities to cash.
The potential windfall for savvy charities, many observers believe, is huge. Five years ago, Claude Rosenberg, a retired San Francisco investment manager who had grown frustrated at being turned down for gifts from people whom he knew had substantial assets, wrote a book titled Wealthy and Wise that focused on giving based on assets instead of income. He showed how Americans could easily double their annual giving to churches and charities without lowering their standard of living, or their wealth, one iota. He was not the first to spot this, but he has become the leading popularizer of giving based on assets.
Now, because of the booming stock market, Mr. Rosenberg calculates that Americans overall could nearly triple their annual giving without lowering the quality of their lives. His organization, the Newtithing Group, estimates that Americans will give about $132-billion to churches and charities this year but that Americans have the capacity to give an additional $242-billion, for a potential total of $374-billion in gifts.
Mr. Rosenberg’s proposition: Change how you look at your capacity to give, focusing on what you have instead of what you make.
“Our main point,” Mr. Rosenberg said, “is that generosity has been based too much on income. With capital for many people being so much larger than income, there is enormous untapped capacity to give.”
He figures that a family in the upper reaches of the middle class, making $50,000 to $74,999 and holding investment assets of $118,000 — the average for that group — could afford to increase their donations by 21 per cent, to $1,600 a year on average — up from the current $1,322 average shown in Internal Revenue Service data. Households that have earnings of $100,000 and $1-million of invested assets could give away $16,000 without changing their way of life, he said — six times actual average giving. And households with annual incomes of more than $1-million could increase their yearly giving more than tenfold, Mr. Rosenberg said.
“I am trying to convince people, especially wealthy people, that it is very much in their interest to give away much more and to create a society where they can live safer, happier, better lives,” Mr. Rosenberg adds. “They just need to change how they think about how much they can afford to give.”
For those who have $650,000 or more in assets — not an uncommon level of wealth for white-collar workers or even police officers these days — the alternative to Mr. Rosenberg’s idea of giving away more now is either to pay estate taxes at death or to give it away at death. Lifetime giving ought to be a lot more rewarding than giving after death. It should even teach donors how to better fashion the gifts they do make when they die.
Those charities that can adapt quickest to this new way of thinking about giving — and, thus, about how they raise funds — stand to gain the most. But knowledge of the new economy and the benefits to donors of giving assets still eludes the majority of charities. Perhaps it is time for some smart grant maker to sponsor a course called Asset Giving 101.
David Cay Johnston, a reporter for The New York Times, has been writing about charities for two decades.
