Apparently the charities of our community are doing something right! Ninety-one percent of high net worth households have “some” or a “great deal” of confidence in the ability of America’s non-profit organizations to effectively address the challenges facing our society. As a comparison, only 25 percent of these same households have any confidence at all in the U.S. Congress.
These are just a few of the fascinating findings of the 2012 Bank of America Study of High Net Worth Philanthropy published by the Lilly Family School of Philanthropy at Indiana University. The study is a compilation of extensive interviews of households with annual incomes greater than $200,000 and/or a net worth of at least $1,000,000 (excluding the value of their home). The average net worth of more than 700 participating households was $10.7 million. When this data is combined with several similar studies conducted by the School of Philanthropy during the last decade, it paints the most comprehensive picture of high net worth donors ever created.
Here are just a few of the interesting findings:
Making an Emotional Connection
There is a basic truth that every experienced fundraiser knows. Annual giving is intellectual, but major giving is visceral. When a donor writes a modest annual check to support a local charity, it usually is driven by the belief that the organization is going to address a problem or enhance the community. The charity makes a logical argument to the donor and the donor in turn makes a rational decision to contribute to the cause.
When it comes to major giving, there needs to be an emotional connection in addition to the logical argument. “Feeling moved about how a gift can make a difference” is the single most common motivation cited by high net worth donors in the study. Seventy-four percent of respondents said that how they felt about the cause or charity motivated a significant gift in the previous year. And if positive feelings drive you to give at the highest levels, it shouldn’t come as a surprise that an identical 74 percent of high net worth donors say they are satisfied with their contributions.
As the study notes, this has major implications for the non-profit world. We know from previous research that a meaningful volunteer experience with a charity directly results in positive feelings toward the organization. Hence, building a strong and vibrant volunteer program not only provides much needed labor for a charity, it also can be a driver of future gifts. The study found that the largest contributions from high net worth households (an average of $102,642) were to charities in which they also donated their volunteer time.
A More Strategic Form of Philanthropy
For a donor of average financial means like me, one of the most impactful ways I can give is to pool my donation under an umbrella organization such as the United Way or through a community fund at my church. My gift by itself has only a modest impact, but when combined with countless others, it can be invested in a significant project that transforms the community.
When it comes to high net worth donors, simply by nature of their wealth, they can single-handedly have that same dramatic impact on the community, but only if their dollars are distributed in a strategic way. So it’s no surprise that 71 percent of high net worth households now report having a giving strategy that guides their philanthropy. That strategy begins with considerations such as a multi-year budget for contributions, a defined geographic area, and a focus on particular issues. The most savvy donors go on to integrate concepts such as venture philanthropy and endowment giving into their plans.
To facilitate this more strategic level of philanthropy, affluent families are increasingly using giving vehicles and outside counsel to maximize their impact on the community. More than half of all high net worth households have (or plan to create) a giving vehicle – some of the most common of which are donor-advised funds at a community foundation (19 percent), charitable trusts (15 percent) and private foundations (9 percent). This trend is accelerating. Since 2009, the percentage of high net worth families using these kinds of giving vehicles has increased by 19 percent. According to the study, donations to giving vehicles was the only charitable category to see an increase in average donations since 2005 when adjusted for inflation.
Indeed, beyond using giving vehicles, nearly 40 percent of high net worth families now seek out advice from outside counsel such as an accountant, an attorney or the staff of a community foundation when making their giving decisions.
The Head and the Heart
So what’s the non-profit world to make of these seemingly contradictory ideas. The vast majority of high net worth donors say how giving makes them feel is a key reason they donate. Yet a majority of these same donors use giving vehicles and seek outside advice so they can be strategic with their generosity.
Nearly three-quarters of respondents indicated that they “derive a personal sense of accomplishment” when a charity they support achieves meaningful results. The lesson here is that a charity should first and foremost do good work, but then it should help high net worth families make a personal connection to those efforts so they can see how their dollars are being well spent. That is rewarding for both the donor and the charitable organization – and our community will benefit as a result.