Philanthropy’s Missing Middle  Characteristics of MidLevel Donors (part 3)
28 Jul 2020

The first two articles in my “Philanthropy’s Missing Middle” series on results from the Boston College Survey of MidLevel Donors focused on giving trends in relation to income levels and age for 1,200 respondents who gave between $2,000 and $20,000 in 2019.   In this article, we’ll analyze where the donations are going.

Each year, GivingUSA reports on the destination of American philanthropic dollars according to ten issue areas, such as religion, international affairs, or arts, culture & the humanities.  To highlight the specific giving patterns of MidLevel donors, we used somewhat different criteria, asking our respondents about the destination of the major part of their donations, both in 2019 and over the past five years. Here are the answers:

Universities or hospitals (7%)

International organizations (5% – GivingUSA reports 6%)

National charitable organizations (18%)

Small charitable organizations in their community (9%)

Religion (37%% – GivingUSA reports 29%)

An equal split among charitable organizations of different sizes or locations (23%)

Other than giving to international organizations, where our respondents mirrored the percentage announced in June 2020 by GivingUSA, all other responses differ from the American average.  The single digit allocation to universities and hospitals is not surprising as we know these donations come principally from wealthy donors, notably the multi-hundred million-dollar gifts that make regular headlines.  Thanks to large gifts, support for universities and hospitals has grown 44 percent since 2007 and they now account for half of America’s 100 largest 501(c)3 organizations.

We also know that half of all US donors give to the top 20 largest US charities – household names such as The United Way, Boys and Girls Clubs, or Doctors Without Borders.  Even the smallest on this list, Save The Children, received over $500 million in private support in 2019.  In fact, a third of American donors list just five charities among their favorites – The Salvation Army, St Jude’s Children Hospital/ALSAC, The American Cancer Society, UNICEF and The Red Cross.

Our survey of Midlevel Donors revealed that 18 percent devoted the major part of their giving to large, national organizations.  In order to dig deeper and compare our results with national averages, we conducted a smaller follow-up survey of 835 adults residing in the US, with a slightly broader demographic catchment  (age 18 and older, rather than over 35 as in our larger survey, and donating between $1 and $20,000 a year to charity, rather than $2,000 to $20,000 in our larger survey).  The responses well exceeded national statistics: Two-thirds of respondents gave to at least one of America’s top 20 favorite charities in 2019, and almost 80 percent gave to at least one in the past five years.  Even more dramatic, 40 percent gave to at least five of the top 20 charities in the past five years.  The most popular is St Jude’s Children’s Hospital/ALSAC (48% of respondents), followed by The American Red Cross (46%), The United Way (34%), The American Heart Association (34%) and Habitat for Humanity (32%).  While many respondents make small gifts (under $1,000) to these mega-charities, our follow-up survey showed a direct correlation between giving levels and a proclivity to support mega-charities.  Indeed, respondents who gave more than $5,000 to charities in 2019 were at least four times more likely to give to “Top-20” organizations than those who gave less than $2,000 that year.

One explanation for the popularity of mega charities is found in responses to the Boston College Survey of MidLevel Donors question “How much of your charitable giving is in response to disasters and other events that move you?”.  Two-thirds of respondents give to disaster relief – with 36 percent devoting “all” or “a lot” of their charitable dollars (only 8 percent of all respondents give nothing).  When disasters strike, the largest national and international charities are best equipped to advertise and collect donations.  Since the last five years have witnessed a high number of disasters, from hurricanes or shootings in the US to earthquakes abroad, these organizations have seen donations increase considerably.   Interestingly, giving to disaster relief rises considerably at each giving level of our survey – among the highest ($15,000 to $20,000) level donors, 78% give at least “a moderate amount” to disaster relief.  Conversely, half of those who do not respond to disaster appeals are in the lowest ($2,000-$5,000) group

Another explanation for the high level of support of mega charities by MidLevel donors is their tendency towards “reactive” giving.  Almost half (48%) respond to fundraising appeals – almost a quarter for “all” or “a lot of my giving.” Though one would imagine donors who give over $10,000 annually would proactively seek out high performing charities in their chosen cause area, our respondents at this giving level remain highly sensitive to fundraising appeals, with 37 percent admitting they give “all” or “a lot” reactively (conversely, 58 percent of donors at the lower $2,000 to $5,000 giving level said they give “none” or “a little” in response to appeals).  Mega charities may represent just one percent of all public charities, but their slick advertising and direct mail/email/social media campaigns are bearing fruit.

The fundraising success of mega charities also means that many donors then ignore smaller charities – only 5 percent of all US donors favor charities with budgets under $5 million (two-thirds of American public charities have budgets under $500,000).  Yet almost all arts, culture, humanities, animal, environmental and youth development charities have budgets under $10 million.  Almost all health and human services charities have budgets under $50 million.  Nevertheless, just 9 percent of the Midlevel Donor responding to our survey favor small charitable organizations in their community.

The final choice of destination offered to survey respondents (who do not split their giving among organizations of different sizes or locations) was “the major part went to my place of worship.” By far the greatest number of respondents, 37 percent, choose to focus their giving on America’s 300,000 religious institutions.  This high number contrasts with GivingUSA’s finding that in 2019, 29 percent of all giving went to religion (down from 47 percent in 2020). Our survey’s donors to religion appear more committed – 72 percent say they are aware “to a great extent” of the impact of the organization’s mission, compared to 59 percent for all other respondents – but spend less time on research before making their gift (46 percent spend less than 15 minutes, as opposed to 28 percent of donors who are not primarily giving to a place of worship).  Over half say no due diligence is required because they simply “know they want to support” the organization (a reason given by only 38 percent of those who do not focus their giving on religion) – a worrisome response as religious nonprofits are not required to file annual tax returns revealing how the donations they receive are spent.

When all our respondents were asked about their interest in learning “how to select the most effective nonprofits,” 68 percent reacted positively (“somewhat” or “very interested”).  However, 55 percent of those responding “not at all interested” are donors whose give primarily to their place of worship.  The respondents most interested in acquiring strategic skills are those who support international organizations – 83 are “somewhat” or “very interested” in learning how to be more effective.  They are followed by those giving to large, national organizations (79 percent), to universities and hospitals (75 percent), to small, local charities (66 percent) and finally to place of worship (56%).

In our next article, we will delve more deeply into the “best practices” of effective giving and analyze how our MidLevel Donor respondents measure up to these standards.

Philanthropy’s Missing Middle – Characteristics of MidLevel Donors (part 2)
23 Jul 2020

Since the birth of our nation, charitable giving has been a defining characteristic of Americans at all socio-economic levels.  But a worrisome trend has appeared over the past two decades: total charitable donations are increasing in absolute terms, yet the share of American households who give has fallen significantly from a high of 68% in 2002 to less than 53% of households today.  This “donors down, dollars up” phenomenon means that donations are coming from a much smaller pool: the very wealthy.

Research by institutions such as the Indiana University Lilly Family School of Philanthropy shows households with lower levels of education, income, and/or wealth stopped giving during the Great Recession (when Giving USA reported an 11.7% drop in inflation-adjusted giving by individuals) and simply have not returned to philanthropy.  The Lilly Family School also cites decreasing congregational affiliation and attendance as an explanation.  Religious donors tend to give more regularly and generously than the American average of 2% of disposable income, but due to the drop in affiliation and attendance, giving to religion has fallen from 47% of all donations in 2000 to 29% today.

The Lilly Family School’s research looks in detail at donors earning less than $100,000 annually who generally give less than $2,000 a year, but lumps all other donors (who provide possibly 80% of total philanthropic dollars) into a single “$100,000+” category.  I posit that this category should be divided further between “High Net Worth” donors who earn at least $200,000 annually, who are the subject of frequent surveys, and “MidLevel” donors who earn between $100,000 and $200,000 annually, because each of these groups displays particular giving behaviors.  To this end, I partnered with Dr Cal Halvorsen of the Boston College School of Social Work to commission a survey of 1,260 individuals who gave between $2,000 and $20,000 in 2019 (generally considered by fundraisers to be in the mid-size range of giving), with the intention of focusing specifically on those earning between $100,000 and $200,000 annually.  Each week, I am publishing an article about this often overlooked and underserved demographic.

This week let’s further examine the 44% of the Boston College Survey respondents who earn between $100,000 and $200,000.  In my previous article, we saw that:

32% gave between $2,000 and $5,000
29% gave between $5,000 and $10,000
25% gave between $10,000 and $15,000
13% gave between $15,000 and $20,000

We also learned that the $10,000 to $15,000 giving level – seen as pivotal by many fundraisers – became most popular when donors began earning $150,000.  This substantial annual income is only achieved by 15.5% of Americans yet is still well below the minimum annual income of $200,000 to be considered High Net Worth by the IRS.

MidLevel donors maintained or increased their giving – particularly at higher giving levels

The good news is that 94% of respondents earning between $100,000 and $200,000 gave the same (32%) or more (62%) to charity in 2019 than in the previous year, and 96% have given the same or more in the past five years.  A key reason cited by 70% of this group was a “major change” in their personal financial situation.  And even more encouraging, 79% of respondents in this earning category who experienced a significant improvement in their financial situation in 2019 then chose to increase their giving.

Not surprisingly, it was at the higher giving levels that the most donors increased their giving year-on-year.  At the critical $10,000 donation level, half of respondents moved from “I gave about the same,” the dominant answer at lower giving levels, to “I gave more.” And at the highest $15,000 to $20,000 donation level, an impressive 77% of donors gave more.  Conversely, among the small number of donors (6%) who were less generous in 2019 than in 2018, the majority (64%) gave at the lowest $2,000 to $5,000 level.

These findings uphold the well-publicized notion that a donor’s personal financial situation is the single greatest determinant of giving.  Indeed, 97% of all respondents – who had donated at least $2,000 in 2019 to qualify for the survey – claimed to be in good, very good or excellent financial health.

 Younger mid-level donors gave more than older generations, especially retirees

When giving trends were correlated with age, the Boston College Survey results directly contradicted another well-publicized belief, as described in the Lilly Family School’s Changes to the Giving Landscape 2019 which states, “When evaluating overall giving by generational cohorts, it is clear that older generations give larger percentages of their income to support philanthropy in America.”

We divided our respondents into three age groups:

37% ranged in age from 35 years (the minimum age to participate in the survey) to 49 years
26% ranged in age from 50 years to 64 years
37% were over 65 years old

By far the greatest number of donors who gave over $10,000 in 2019 were in the “under 50” generational cohort.  An impressive 58% of annual donations at the highest $15,000 to $20,000 level came from donors under age 50 – despite their representing just over a third of the sample.  75% of donors in the under 50 age group had increased their giving over the past five years.  Some of this generosity can be explained by the greater wealth of survey respondents under age 50 – there were almost exactly the same number of respondents under age 50 as there were over age 65, but 56% of the under 50s earned $100,000 to $2000,000 and 21% were High Net Worth, as opposed to only a third of those over 65 earning $100,000 to $200,000 and 13% identified as High Net Worth.

However, our findings were reinforced when we focused on retirees.  Contrary to research done on High Net Worth donors, retirement does not appear to lead to more generosity from Midlevel donors.  Though representing 32% of our survey sample, retirees provided only a fifth of donations over $10,000.  And among retired respondents, half gave at the lowest level of $2,000 to $5,000 (just over a third of donors in the workforce gave at the lowest level).  These lower levels of generosity can be explained partly by the lower annual income of the survey’s retiree respondents – 36% earned between $100,000 and $200,000 as opposed to 52% of the working respondents; only 8% were High Net Worth.  One may therefore conclude from the Boston College Survey that middle-aged MidLevel Donors are giving generously , which bodes well for the future and appeases the fear that the Millennial generation will not catch up with the giving levels of its older counterparts.

Changes to the tax law seem not to affect MidLevel Donors

Much has been written about the potential negative effect of the 2017 Tax Cuts and Jobs Act on charitable donations.  But when asked “How did changes in the tax law influence how much you gave in 2019?”, 63% of respondents said it had no effect and only 10% noted they gave less.  Since we know that most taxpayers who earn over $100,000 itemize, and since 60% of the Boston College Survey respondents earned over $100,000, we can safely conclude that the 94% of respondents who gave the same or more in 2019 were motivated by something other than a tax deduction.

In a pre-COVID world, this week’s analysis of results from the Boston College Survey of MidLevel Donors would give great hope for the future.  Despite being overlooked by researchers, underserved by philanthropy advisors, and increasingly ignored by fundraisers, MidLevel donors, particularly those under 50, were showing signs of growing generosity in April 2020 when the survey was conducted.  The question now is whether this generosity will continue as they experience the painful effects of potential job loss and a post-COVID recession on their personal finances.

My next article will examine how MidLevel donors give.

 

Philanthropy’s Missing Middle  Characteristics of MidLevel Donors (part 1)
23 Jul 2020

The “missing middle” is a term used in a variety of contexts that can also be applied to philanthropy. While most research looks at the philanthropic behavior of high and ultra-high net worth donors, who represent 8.5% of US households, and may occasionally focus on small donors who give under $1,000 annually, very little attention is paid to “midlevel” donors who earn between $100,000 and $200,000 a year. This demographic represents 22% of US households but falls just below the minimum earnings level to qualify for the SEC’s definition of “high net worth.”

Members of this group are noticeably more generous than small donors and care deeply about the effectiveness of their donations but cannot access the bespoke services of philanthropy advisory departments in private banks nor afford consultants. Their beliefs, needs and philanthropic habits are well worth investigating and monitoring.

To this end, and in collaboration with Dr. Cal Halvorsen of Boston College’s School of Social Work, I recently commissioned a study of 1,260 individuals who made charitable donations ranging from $2,000 to $20,000 in 2019. Each week, I will post a discussion of the results from one portion of this survey.

40% of survey respondents earned under $100,000 annually and 16% earned over $200,000 annually. So, almost half (44%) fell within the midlevel demographic. In my sample of midlevel donors,  32% gave between $2,000 and $5,000 in 2019, 29% gave between $5,000 and $10,000, 25% gave between $10,000 and $15,000, and 13% gave between $15,000 and $20,000.

Every midlevel donor gave well above the national average of 1.9% of income.  When compared with donors at other income levels, it was apparent that a “jump” in giving occurred once individuals earned more than $100,000. For example, only 12% of respondents earning under $100,000 a year gave more than $10,000 to charity, a figure often cited by fundraisers as a significant threshold. But 38% of the group earning between $100,000 and $200,000 reported giving over $10,000 in 2019 – a jump of 309%.

As income levels increased beyond $200,000, the curve leveled off. Only 48% of respondents in the high net worth income bracket reported making gifts over $10,000, a much smaller increase of 26% over the midlevel bracket. In fact, there was almost no difference the percentage of midlevel and high net worth donors who gave over $10,000. And 56% of high net worth respondents gave less than $10,000 a year (this survey did not include high net worth donors who gave more than $20,000).

Another noticeable change in giving behavior appeared at the $150,000 earnings mark. While only 9% of donors earning between $100,000 and $150,000 gave at the highest level proposed in the survey ($15,000 to $20,000), the number jumped to 20% once respondents reached annual incomes of $150,000. At this earning level, the most popular giving category shifted from “$2,000 to $5,000” to “$5,000 to $10,000” (chosen by a third). But high net worth respondents did not increase their favorite giving category beyond the $10,000 level until they reached annual incomes over $350,000.

These findings provide conclusive support for the proposition that midlevel donors are a much more important donor demographic than often perceived – yet woefully neglected by advisors and philanthropic resources.