From The Chronicle of Philanthropy, May 24, 2021

As America begins to reopen and the economic forecast brightens, many people in the nonprofit world are hoping that after the tumult of the past year, we are about to usher in a permanent change in the way donors give.

After all, we’ve seen foundations and very wealthy individuals take more risks and provide the flexible, multiyear funding nonprofits have long sought. At the other end of the donor spectrum, a Chronicle of Philanthropy survey found that giving to well-known megacharities skyrocketed in 2020, powered by smaller donors.

Little has been said, however, about the habits of midlevel donors — and yet they are the ones who have the potential to provide the steady stream of dollars nonprofits need to ensure that our recovery leads to real and lasting change. Training our sights on people who earn $100,000 to $200,000 a year — about one-fifth of Americans — is especially important given recent forecasts that suggest many wealthy donors are already returning to their old ways as the pandemic recedes.

Development officers have long known that people at those income levels may represent only a small percentage of an organization’s supporters but give an outsize amount of money. They also are prime candidates for making significant gifts following a financial windfall or through bequests.

Still, the lack of data about their giving patterns and motivations has stalled cultivation efforts. To fill that gap, I worked with Cal Halvorsen, assistant professor at the Boston College School of Social Work, to commission a study of 1,260 Americans age 35 and older who gave a total of $2,000 to $20,000 in 2019. People filled out the survey in April 2020, a month into the pandemic, responding to questions about their giving in 2019.

Our respondents gave a higher share of their income (1.9 percent) than the national average — and an impressive 40 percent of those earning under $100,000 (41 percent of our sample) gave more than $5,000 to charity in 2019.

Many fundraisers consider gifts of $10,000 to be a significant threshold; 38% of those who earned $100,000 to $200,000 (44 percent of our sample) exceeded this amount in 2019.

Almost all the donors had maintained or increased their giving levels over the past five years. More than half of those giving more than $10,000 annually had increased their giving in 2019.

Our donors are loyal: When asked about their most significant gift of 2019, more than two-thirds had been supporting the same organization for more than five years. Nearly two in five said their satisfaction with their giving was a “10 out of 10” (four in five gave a score ranging from 8 to 10). Moreover, 88 percent would give even more if their satisfaction levels increased even further. And most would allocate a portion of any future financial windfall to charity.

Lack of Focus on Effectiveness

Generosity and loyalty are extremely important, but it’s crucial to ensure that donors are steering their money to the organizations that are making a difference.

Yet we discovered a disquieting disconnect between midlevel donors’ high satisfaction levels and their knowledge about the actual impact of their donations. Respondents strongly believe the organizations they support should “do a good job of demonstrating effectiveness,” show “good leadership,” “meaningfully engage with the individuals and communities [they] serve,” and “identify real opportunities to make change.” But they do not apply these criteria to their own philanthropic decision making.

Given how much time individuals generally spend researching big-ticket purchases likes electronics and vacations, we could assume that midlevel donors spend equivalent amounts of time learning more about the organizations they are supporting with gifts of similar value. Yet two-thirds of our respondents spent less than an hour on research before donating, and one-third spent less than 15 minutes. Only a third compared charities before giving. Even in the highest annual donation category of $20,000, well over half spent less than an hour studying where to give. And fully a third of respondents were not aware of the impact of the principal organization they supported.

Those midlevel donors who bothered to conduct research relied on the organization’s website (60 percent), online searches (48 percent), information from family or friends (43 percent), or charity evaluation websites such as Charity Navigator and Candid’s GuideStar service (38 percent). But almost two-thirds did not contact organizations (even among the largest donors, who gave more than $15,000, only 61 percent made contact). When we asked why, close to half said they simply “knew they wanted to support the organization.”

Indeed, half the midlevel donors said “a lot” or “all” their giving went to charities with which they had a personal relationship. So, if personal relationships replace due diligence, would volunteering lead to more interest in understanding impact? Most of our donors volunteered at least once per year, half at least once a month, and almost a quarter at least once a week. But there was no correlation between volunteering and more thoughtful giving.

Where They Give

Our midlevel donors gave to different institutions than small donors or the wealthy typically do. They favor fewer megacharities than smaller donors but give less to universities and hospitals than America’s wealthiest.

Two-thirds donated to disaster relief, almost half responded spontaneously to fundraising appeals. However, 37 percent focused their donations on their place of worship, far more than the national average of 29 percent. This group of donors was more aware of impact but spent even less time on research (almost half spent less than 15 minutes).

We also asked whether they considered making their contributions through community foundations, giving circles, donor-advised funds, or bequests. And we probed whether they supported initiatives other than traditional programs and projects.

Many of the donors had heard of those approaches, but few used them. Less than a quarter knowingly gave to advocacy and communications campaigns or to fund the basic operating costs of a charitable organization. Most troubling, nearly 90 percent said it was important that “the smallest possible portion of [their] donation” go to overhead.

Putting Relationships Over Results

Thus, we found our midlevel donors to be generous and deeply caring, but contentedly apathetic, basing their philanthropic decisions on relationships rather than results. Our conclusions suggested that little has changed since the 2015 Money for Good study by the Camber Collective, which found that “most individual donors are emotional, irrational, and personal. … Finding a high performing nonprofit is not the primary goal nor the number one desired outcome.”

At a time when a third of America’s crucial local community-based organizations may face closure, when Black, Indigenous, and people of color-led organizations are still chronically underfunded, thoughtful and effective support for the organizations doing the most good is more important than ever. How can midlevel donors be equipped with the tools and incentives needed to transform their giving habits?

Wealth Advisers Could Be Key

We were pleased to find that more than two-thirds of donors were “somewhat” and “very interested” to learn “how to select the most effective nonprofits.” Of the “very interested,” 81 percent would favor an online course or webinar, and 51 percent would attend a workshop offered by their financial or legal adviser.

Indeed, advisers hold the key to donor education. In recent years, wealth advisers have grown increasingly aware of the beneficial effects of discussing philanthropy with clients, although this focus has been primarily on high- and ultra-high-net-worth individuals and families. But midlevel donors also consult advisers: Although 80 percent of our 1,260 respondents had assets under $1 million, the same proportion has financial or legal advisers with whom more than two-thirds discuss philanthropy at least occasionally.

Advisers need to be supported with more low-cost educational products that are enlightening, engaging, free of jargon, and specifically targeting midlevel donors. The nonprofit world sorely needs this loyal and generous pool of midlevel donors to find and support organizations that do the most good. They are poised to give more if fundraisers and wealth advisers provide greater motivation. I invite all those who care about more thoughtful and effective giving to take on this challenge.

 

Philanthropy’s Missing Middle Characteristics of MidLevel Donors (part 5)
29 Sep 2020

In this fifth and final analysis of the Boston College survey of 1,260 Mid-Level donors (who gave between $2,000 and $20,000 to charity last year), we continue looking at our respondents’ giving habits.  In the preceding article, we sadly concluded that “contented apathy” is the best descriptive of our donors’ attitude: they care about their effectiveness of their giving but are not requiring the organizations they support to demonstrate impact.  In addition to measuring our respondents’ discernment, we tested their knowledge of key philanthropic concepts in two ways. First, we listed a series of well-known pathways to change and asked respondents to identify all those that they had given to in the past five years. Overall, respondents reported giving to:

Type of issue or cause Percent who gave in past 5 years
Specific programs such as providing direct services 70%
Advocacy campaigns to change policy on an issue 23%
Communications to influence public opinion 21%
Capacity building to fund the management needs of a charitable organization such as strategic planning, technology or fundraising consultants 24%
Capital campaigns such as for buildings, endowments or expansion to a new location 34%
Research 42%
General operating costs or an annual fund 41%

These numbers are not surprising given how little our respondents seem to know about how their donations are used, although the high score for “giving to research” is explained by the popularity of health charities.

Second, we tested our respondents’ familiarity with giving vehicles whose popularity has increased in recent years: community foundations, donor advised funds, and giving circles.  While most were familiar with (76%) or gave through (6%) community foundations, far fewer were familiar with (55%) or gave through (4%) donor advised funds (“DAFs”). Even fewer were familiar with (49%) or gave through (3%) giving circles.

As could be expected, familiarity with giving circles and DAFs increased at the higher income and giving levels. 69 percent of donors who gave at the top level (between $15,000 and $20,000) knew of or gave through giving circles, as did the same percent of respondents who earned over $350,000 annually.  At this highest giving level, 7% of respondents claimed to use DAFs as a giving vehicle (as opposed to 4% overall).

We ended the survey by exploring three possible ways to encourage donors towards more research and thoughtfulness: volunteering, financial advisors, and educational resources.

We expected that volunteering, and especially board service, would encourage donors to invest more time in their philanthropic due diligence.  Indeed, 84 percent of respondents volunteer at least once per year – almost half at least once a month and almost a quarter at least once a week. Further, nearly a quarter of all respondents serve on boards.  We found that volunteering is closely correlated with increased giving: 90 percent give to the organization for which they volunteer and half of those respondents make the organization the focus of their charitable dollars. Furthermore, more than twice as many of the “high-ticket” donors who give over $10,000 annually (39%) were board members as those who gave less than that amount.  67 percent of the high-ticket donors volunteer at least once a month (compared to 42 percent of those who give between $2,000 and $9,999 a year) and only 11 percent of high-ticket donors do not volunteer at all.   Donors who volunteer are also more responsive to appeals (letters, emails, calls, social media): Of donors who make “all” their gifts in response to fundraising appeals, two-thirds serve on boards and over half volunteer at least once a week.

However, volunteering and even board service do not seem to correlate with more thoughtful and effective giving (defined for the purposes of this survey as linking donor satisfaction with knowing that a charitable organization is making a difference, whether it is well run, or understanding the solutions to an issue).   Donors who volunteer are more likely to say that having a personal contact with a charitable organization is very important to their sense of satisfaction about their giving, and question whether the charity is legitimate less than donors who do not volunteer, but volunteering does not seem to impact their “philanthropic literacy.”

The second pathway to improving Mid-Level donor thoughtfulness could be through their trusted advisors.  In recent years, the wealth advisory community has been sensitized to the beneficial effects of discussing philanthropy with clients although its focus has been primarily on high/ultra-high net worth individuals and families.  Certainly, 80 percent of our 1,260 respondents have a financial or legal advisor (despite the great majority – 81 percent – owning less than $1 million in assets).  Of the 1,004 respondents who seek professional financial or legal advice, 68% discuss philanthropy with their advisor – 20 percent regularly and 48 percent sometimes.   It’s once again at the $100,000 annual income mark that more than half of donors (56 percent) begin discussing philanthropy at least sometimes with an advisor – a portion that rises to 75 percent at the $350,000 annual income level.  We were also surprised – and gratified – to learn that 55 percent of our respondents intend or are thinking of leaving charitable bequests despite the fact that 40% earn less than $100,000 annually.

Thus the pump is primed for advisors to provide the educational resources that will empower Mid-Level donors to be smarter about their charitable giving.  When asked, two-thirds of respondents would “be willing to invest time in learning how to select the most effective nonprofits” (and almost 1/3rd “very interested”).  Of those who responded “Not at all interested,” the most common responses were “I already know how to do this” and  “I already have so many charitable obligations that I have no money left over for new charities.”  But the majority who report being “very interested” in donor education indicated preferring an online course or webinar series (81 percent) or a workshop offered by their financial or legal advisor (51%).

While there exist a number of self-education resources for individuals interested in becoming more effective in their charitable giving, almost all target high and ultra-high net worth donors.  Yet almost half (48 percent according to the Chronicle of Philanthropy, 2019) of US philanthropic dollars from individuals come from donors who earn less than $200,000 annually.  As demonstrated by this survey, MidLevel donors care deeply about their giving and want to have impact but are unwilling to invest much time or resources to select high preforming charities.  They need to feel empowered with clear and simple tools to make effective decisions.  And those best placed to distribute these tools are their trusted advisors.

To this end, I developed for advisors a number of donor education products specifically targeted at the MidLevel donor demographic (which can also be used by more affluent donors!) that are enlightening, engaging, and free of jargon.  My virtual, modular curriculum, “Smart Donors… Make A Difference,” can be used as a three-hour, self-directed online course for clients to view in their own time, or as the basis for webinars and workshops.  Please look at www.sd-mad.com for a sample of the modules and more information on obtaining access to this unique donor education tool.

Philanthropy’s Missing Middle  Characteristics of MidLevel Donors (part 4)
24 Aug 2020

In this fourth article of the “Philanthropy’s Missing Middle” series on the Boston College Survey of MidLevel Donors, we will focus on the giving habits of 1,200 respondents who gave between $2,000 and $20,000 in 2019.

Based on best practices in effective philanthropy, a midsize donor should spend at least an hour conducting research before making a significant donation, seeking a basic understanding of the issues at stake and comparing charities to select those that are really making a difference and are well run.  To our surprise and concern, only 4 percent of respondents fit our “ideal donor” profile (worse, if we remove “spend over an hour,” the number only increases to 7 percent, and if we remove “comparing organizations,” the number only rises to 8 percent).  We found our respondents to be contented but apathetic, basing their giving on relationships rather than results.

90 percent of respondents claimed they donate to causes about which they are passionate, and 72 percent said their principal donation in 2019 went to an issue they care about strongly, yet only 19 percent researched all the organizations they supported to ensure these were “best in class.”  48 percent of respondents did “moderate, little or no” such research.

The majority of the “no research” answers (56 percent) came from the smallest donors (gifts totaling $2,000 to $5,000 in 2019), with only 4 percent of the largest donors (gifts totaling $15,000 to $20,000 in 2019) saying they did no research at all.  As we have already repeatedly seen, it was at $10,000 in annual giving that the majority of donors (60 percent) sought out “best in class” charities for “a lot” or “all” of their gifts.

Thus, it is not surprising that a third of respondents spent less than 15 minutes researching organizations before donating (another third spent 15 minutes to an hour, and the last third spent over an hour).  Also unsurprising, half of those who spent no time were in the smallest donor category, whereas 43 percent of those who spent over an hour were in the highest donor category.

As a result of this lack of research, only 64 percent of respondents were “very aware” of the impact of the charities they supported (this number rises to 83 percent among respondents who directed all their giving to “best in class” charities).  Yet even among the most diligent donors, only 48 percent spent more than an hour researching their donations.

Respondents were asked about the tools they used to conduct research:

— The organization’s website 60%

— An online search 48%

— Information from family or friends 43%

— A charity evaluation website (Charity Navigator, Guidestar/Candid…) 38%

— A professional advisor 14%

— Somewhere else 8%

There was a close correlation between respondents who used several tools and the time they spent on research: 60 percent of those who used four tools spent over an hour on research; 60 percent of those who used only one tool spent less than 15 minutes researching their donation.  Almost two-thirds of donors did not contact organizations directly (except among the largest donors, 61 percent of whom were in direct contact with their beneficiaries).

While 60 percent of respondents checked a charity’s website, only a shockingly low 34 percent compared charities before donating.  Among donors who claimed to seek out “best in class” organizations for all or a lot of their giving, only 42 percent compared charities.  Even among donors who spent over an hour on research, only 45 percent comparison shopped before making a donation.  Almost a quarter of respondents said they “had no time,” “didn’t know how,” or “didn’t think to do it.”  And 43 percent said they did not conduct research as they “knew they wanted to support the organization because of recommendations or a personal relationship” (among this particular group of respondents, 44 percent give principally to their place of worship; however, only 19% donors who focus on international charities used this excuse for not conducting research).

Indeed, personal relationships are key.  51 percent of respondents said “a lot” or “all” their giving went to charities with which they had a personal relationship.  As would be expected, 61 percent of donors who favored places of worship, 58 percent of donors who focused on universities and hospitals, and 57 percent of donors who primarily support small local organizations are driven by personal relationships.

In contrast, only 36 percent of donors who gave primarily to a large, national organization stated their giving was based on personal relationships.

Despite spending so little time and effort researching their donation, respondents gave the organizations they support extremely high approval ratings (the criteria we chose were based on best practices in effective philanthropy).  There was little variation in these numbers between the largest and smallest donor groups.

Would you say the charitable organization…                                                                Yes

— Does a good job demonstrating its effectiveness?                                                    93%

— Has good leadership?                                                                                                89%

— Meaningfully engages with the individuals and communities it serves?                   90%

— Has identified real opportunities to make change?                                                   89%

Therefore, it not surprising that 45 percent of respondents gave a ten out of ten score when asked about their satisfaction with their giving – 87 percent gave a score between eight and ten.  And while already extremely happy about their giving, 88 percent of respondents said they would give more if their satisfaction levels further increased.

When asked about their most significant gift of 2019, 68 percent of respondents said they had been supporting the organization for over five years.  82 percent have never stopped or decreased their giving due to feeling dissatisfied.  Though the pool of dissatisfied respondents willing to drop a charity was small, it represented donors who conducted more research (70% spent more than 15 minutes) than the sample average.  34 percent of the dissatisfied donors favored places of worship and 20 percent gave principally to large, national charities.

Slightly more (a quarter) of respondents admitted to stopping or decreasing a donation because they felt it was not making a difference (the number drops to 16 percent among smaller donors) – yet only 55 percent of this group said they were “very aware” of the organization’s impact!

We also probed one of the most common – and destructive – myths in the philanthropic sector: judging an organization by its overhead ratio.

How important is it to…                                                                                                     Very Important

— Know that the smallest possible portion of my donation is going to overhead                          57%

— Know that staff is not being overpaid                                                                                         50%

— Know that staff is being paid a fair wage                                                                                   49%

This focus on overhead rather than impact is highly damaging to the non-profit sector.

Given the extremely high general satisfaction of our respondents with their charitable giving, we were expecting similar enthusiastic responses – in the 80 to 90 percent range – when we asked what factors (based on best practices of effective philanthropy) gave rise to these feelings of satisfaction.  To our great surprise, most responses were only in the 50 to 60 percent range….

Very Important

— Knowing how to tell if an organization is legitimate                                                              71%

— Knowing how to tell if a charitable organization is really making a difference                      62%

— Knowing how to tell if a charitable organization is well run                                                   57%

— Understanding the issues I care most about                                                                         51%

— Having a personal relationship with the organization                                                            39%

Most philanthropy advisors would consider these criteria fundamental to thoughtful and effective giving – and to the feeling of satisfaction that comes from knowing your donation is making a difference.  Yet it appears that a high level of “contented apathy” reigns among the Midlevel Donors we surveyed.

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.

 

This article was co-authored with Ayele Shakur, CEO of BUILD, my Encore Public Voices Fellowship colleague – First appeared on WBUR’s Cognoscenti platform:  https://www.wbur.org/cognoscenti/2019/05/07/college-donation-inequality-sylvia-brown-ayele-shakur

Alumni often donate to their universities as a tribute to the education they enjoyed, and to allow others the same experience. But they rarely consider whether their donations would have a much greater impact at local public universities or nonprofits that work to send more students to college.

It is time to rethink the near sacrosanct tradition of giving to higher education, particularly since it mirrors our coun

try’s unequal distribution of economic gains. The 20 top schools — a minuscule percentage of America’s more than 4,000 colleges and universities — raised 28% of the $46 billion given to higher education last year. Seven schools received gifts of at least $100 million. Harvard, Stanford and Columbia each raised more than $1 billion.

It may seem strange that we are questioning giving to universities. Sylvia Brown is a University of Pennsylvania alumna and her family has supported Brown University since 1764; Ayele Shakur, a Harvard alumna, is CEO of BUILD, which uses entrepreneurship to propel youth from under-resourced communities to college. We recognize nine out of 10 new jobs created in 2018 went to workers with a college degree. Neither of us doubts the transformational impact of higher education nor the vital importance of university-based research and innovation. But we are alarmed that the growing number of mega-gifts to the same few exceedingly well-endowed universities is not solving the complex college access challenge.

The 20 top schools … raised 28% of the $46 billion given to higher education last year.

Giving by wealthy families to wealthy universities only deepens and exacerbates inequality in America. Universities have slick fundraising machines and built-in donors: pools of grateful — and often nostalgic — alumni, who graduate with an ingrained expectation of giving to their alma mater.

Harvard has an endowment of $39.2 billion. By sharp contrast, the median U.S. university endowment is just $8 million. A $100 million donation dropped into a vast sea of endowments barely makes a ripple, but that same gift judiciously invested in nonprofits or smaller colleges could have a catalytic impact.

For example, 85% of BUILD students will be the first in their families to earn a bachelor’s degree, but none will join the 1,650 incoming freshmen at Harvard this year. Zolan Dangerfield is a high school senior in Boston who plans to major in international business, a field he was exposed to during his time in BUILD’s youth entrepreneurship program. Zolan was accepted to eight schools and will be the first in his family to attend college.

The question for him is not which school has the fanciest meal plan but rather the cost of tuition and how his family will cover the $5,000 he needs, after financial aid, to attend his first choice, Worcester State University. With luck, Zolan will finish in six years, working part-time jobs. Far too many first generation kids eventually drop out of college because they cannot afford tuition and also find themselves ill-prepared by their under-resourced high schools.

This is why the Varsity Blues scandal is particularly insulting to those of us working to improve access to higher education. This is why the recent $25 million gift to Brown University by an alumnus, Orlando Bravo, to fund the Orlando Bravo Center for Economic Research to study inequality makes little sense to us who think about maximizing impact.

Before writing a big check to Harvard … remember students like Zolan, who would be thrilled to get a $5,000 scholarship for Worcester State.

Indeed, many universities have failing public school systems right in their own backyards, and as they expand their tax-free real estate footprint, they exact dire consequences on their neighborhoods. A 2018 report by RentCafe showedthe high levels of gentrification brought about by private universities expanding in urban areas, displacing longtime low-income residents. At the same time, public K-12 school districts receive very little support or partnership with these neighboring institutions of higher learning. The University of Southern California in South-Central Los Angeles and Columbia in pre-gentrified Harlem are both blistering examples of universities with major endowments doing very little to invest in their communities. As endowments go up, the number of college seats available to children who play in the shadows of these behemoth institutions stays stagnant. These same institutions are advancing income disparities and inequities along with their degrees.

Spring is a particularly challenging time of the year, when students receive their college acceptance letters and grapple with which schools they can actually afford to attend. Before writing a big check to Harvard, Yale or Georgetown, remember students like Zolan, who would be thrilled to get a $5,000 scholarship for Worcester State. There are great kids trying to make the giant leap to college — the passport to the middle class — without enough investment to lift their wings.

Let’s take this opportunity to not only rethink admissions but also to rethink philanthropic investments in higher education. Our country does not suffer from a lack of resources. We suffer from misguided priorities about where those resources should go.

OPINION
FEBRUARY 12, 2019
PREMIUM

All Donors Need More Education — Not Just the Wealthy

By Sylvia Brown

PETE RYAN FOR THE CHRONICLE

The recent wave of books and articles criticizing American philanthropy and billionaire donors is missing an important point. Of the $286 billion given by individuals in 2017, just $80 billion came from “the top 1 percent” according to IRS figures.

The rest came from small and midsize donors, most of whom devote less than two hours a year — five minutes a week — to due diligence before making a charitable gift. Americans spend hours researching restaurants, cars, and insurance policies, but fewer than 10 percent of donors bother to compare organizations before giving.

These depressing facts come from a 2015 Camber Collective report, “Money for Good,” which concludes: “Donors feel overwhelmed by the giving process, they are often uncertain where to start, don’t have the information they want, feel pressed for time, and hence default to comfortable but less effective giving habits.”

I became aware of a glaring disparity in access to donor education after completing a transformational course in strategic philanthropy offered to wealthy donors by the Philanthropy Workshop. (As I do not have the resources of my ancestors, I probably qualified because of my family’s 300-year tradition of charitable giving in Rhode Island, notably to Brown University.) But once I was equipped with the tools to give effectively, I noticed how few people around me, particularly those who gave $10,000 to $100,000 annually, were aligning their donations with their passions. Since they had no strategic road map to follow, they often felt confused and dissatisfied.

Donor education is needed at all levels of wealth, from the employee who makes payroll deductions to United Way to the multimillionaire with a family foundation. As noted by Paul Brest, former head of the William and Flora Hewlett Foundation, “Despite the increasing belief that the work of the sector should rest on goal-oriented, evidence-based strategies, very few donors actually follow these principles.” (Hewlett is a financial supporter of the Chronicle of Philanthropy.)

Ultra-high-net-worth individuals can take advantage of the philanthropy advisory services of private banks, or they can hire consultants. Organizations that serve donors, such as Exponent Philanthropy or the National Center for Family Philanthropy, provide robust educational resources for fee-paying members whose typical gift size is more than $100,000. No one wants to offer low-cost donor education to individuals who are not a source of fees.

Some community foundations and donor-advised funds hold free or low-cost workshops and webinars. Some major players include educational pages on their websites, such as Fidelity Charitable’s “Boost Your Donor IQ,” the Bridgespan Group’s “Give Smart,” and the Philanthropic Initiative’s “Learning Center.”

There are a half-dozen books on effective giving and one MOOC, Laura Arrillaga-Andreessen’s Giving 2.0. But of necessity, these guides adopt a “one size fits all” approach and remain overly generic. And most manage to alienate smaller donors by citing case studies of billionaire philanthropists.

Once I finished mapping the situation — and more determined than ever to use my skills and experience to help others give better regardless of their wealth — I sought out intermediaries who would find it beneficial to provide practical guidance for donors at all levels. The most promising group, I concluded, are the trusted financial and legal advisers who already know so much about their clients’ circumstances.

But the current “philanthropic conversation,” a term coined by the US Trust and the Philanthropic Initiative, is not good. According to their most recent joint study, a majority of clients want their adviser to assist with philanthropic decisions, but only a tiny minority feel advisers know how to “give to make a difference.” Conversely, the study concludes that advisers acknowledge that discussing philanthropy is good for business — two-thirds want to learn more about giving — but feel their existing resources are inadequate

To test this finding, I enrolled in the Chartered Advisor in Philanthropy online certification course offered by the American College of Financial Services.

I learned about strategies for integrating philanthropy into estate planning, about taxes and charitable-giving vehicles, about successful fundraising and ethics, but nothing about where the money should go — how to choose a cause and where to intervene, how to measure social impact, and how to select and engage with nonprofits.

The equivalent would be a financial adviser preaching the importance of investing in the stock market and providing clients with the necessary liquidity yet giving them no advice on which equities to buy.

It is therefore hardly surprising that a majority of clients consider their advisers good at discussing personal charitable goals but feel they focus only on the technical aspects of philanthropy, such as tax considerations or wealth structuring, instead of answering the clients’ most pressing questions: “Will my gift be used wisely?” and “How can I learn about a charity?”

The same issue exists for the wealthy families who are being primed to give by consultants and facilitators specializing in legacy and communications issues — and then left hanging.

Again, I investigated this situation by enrolling in a course offered by “21/64,” an organization dedicated to helping families involve their children and grandchildren in giving. When it ended, I asked the instructor, “You have given me all the tools to inspire families toward philanthropy and to prepare their mission statement, but who is going to help them figure out how and where to give?”

“They can hire a philanthropy adviser,” she answered. I thought to myself, Well, what about all the donors giving well under $100,000 who cannot justify this expense — how are they to experience the joy that comes from following a passion strategically and thoughtfully?

Indeed, using brain-imaging technology, researchers can see the midbrain light up when people donate, the same area of the brain linked to cravings (such as chocolate and sex) and pleasure rewards.

Yet a study by UBS titled “Doing Well at Doing Good — Why There’s More to Giving Than Checkbook Philanthropy” concluded that only two in five donors surveyed were “extremely” or “very” satisfied. Only one in five rated his or her efforts as highly effective. The good news, however, is that even a little planning improves satisfaction by almost 50 percent.

Donors are also eager to share experiences but often shy about discussing their giving outside of safe spaces. The proliferation of “giving circles,” geographical or caused-based donor groups that gather to educate themselves and provide greater impact through larger grants, is proof of this desire for fellowship and a more fulfilling giving experience.

Some philanthropists, such as Jeff Raikes, recognize that “educational experiences with a lower barrier to entry, both in cost and level of engagement,” are needed for “BMW donors,” his term for midlevel donors.

In 2017, he launched Giving Compass.org, a website that aggregates and curates information on trends, trustworthy approaches, and resources in philanthropy. But its use requires familiarity with the field and does not provide a much-needed strategic framework for processing the information.

Other philanthropists fund the development of giving apps and platforms that enable donors to make easy, spur-of-the-moment donations, but these do not incite even a minimal investment in time and thought required to be strategic and effective.

Thus, it is wealth advisers, financial planners, trust and estate lawyers, and tax advisers who have the greatest vested interest in seeing philanthropic education programs developed, both for themselves and for their midsize clients. Many already offer their clients access to virtual financial literacy courses, which require no staff time to run and are inexpensive to produce. They could offer similar virtual donor-education courses that are emotionally engaging (not more PowerPoints and talking heads), practical and specific, providing both concrete case studies (of midlevel donors, not billionaires) and opportunities to learn from one another. A small investment in compelling products would generate outsized returns in client satisfaction.

Other obvious participants in the drive to improve the philanthropic practices of midlevel donors are donor-advised funds such as the behemoth Fidelity Charitable, which distributed $4.5 billion in 2017 from accounts with a median size of only $19,000. Fidelity Charitable and the other large DAFs are in a strong position to ensure this money really makes the most difference by offering enticing educational products to all their clients.

As many recent books and articles have noted, charitable contributions from the wealthiest donors have increased significantly over the past decade while giving by small and midlevel donors (who traditionally make up the solicitation lists for most national nonprofits) have declined by about 2 percent annually. There are calls for legal and fiscal changes, including altering charitable-deduction rules, taxing foundations, and increasing government’s involvement in civic society. But so far, no one has suggested that a sensible investment of time and money in donor education for all might lead to higher and more effective levels of giving and, more important, to a lot more joy.

To better inform my new online course “Smarter Donors… Make a Difference,” I conducted market research using Userinterviews.com.  I asked two multiple choice questions about annual giving levels and about how much research donors undertook before making a gift, and two open ended questions about their satisfaction levels and if they would enjoy learning how to be smarter and more effective.  Within just a few minutes, I had 32 qualified respondents.  Though just a tiny sample, it so perfectly illustrates why donor education is urgently needed that these responses must be shared.

Due to the nature of the research platform, I expected most of the respondents to be small donors (who give under $10,000 a year) and indeed only four give between $10,000 and $20,000 – none give over $20,000.  Twelve checked “I give only to organizations I know well (religious, alma mater, etc).”  Eleven checked “My giving is pretty spontaneous – in response to appeals or requests from friends – so I don’t do any research.”  Only the smallest number, nine, checked “I’d love to find organizations doing good work in the issue area I’m interested in, but I don’t know where to begin.”  As research shows time and again, people give to institutions often not aligned with the causes or issues that move them.

This focus on organizations but not issues was most apparent in the answers to the open-ended question: “If you were offered a free online course to learn how to give your money away more strategically and effectively, would you take it? What would you like to learn specifically?”  ONLY ONE respondent answered, “I would like to learn how to focus on human causes where funding is needed.”  Everyone else wanted to know about the non-profit.  A few (3) used words such as “impact” or “effectiveness,” but the majority wanted to know “where the money goes” or “whether the money is used effectively.”  Several mentioned worrying about high CEO or staff salaries.

Even before conducting any interviews, my decision has been reaffirmed to make “how to choose a cause and develop your personal giving roadmap” the course’s first module.  Figuring out which approach is most effective, which non-profits are already dealing with the issue, and what lessons have been learned must come first.  Selecting an organization to support is the LAST milestone of the roadmap.  And when we get to this final module, the first lesson will be “Overhead costs are not an indication of effectiveness.”  Too few people realize that most jobs in the non-profit sector are grossly underpaid (only 5 percent of America’s 1.5 million non-profits have budgets over $10 million and could even contemplate paying inflated salaries in any case).  Naturally, we all want our hard-earned dollars going to the right organizations, but first we must figure out who is doing the best work, who is listening to their beneficiaries, and who reaching their goals.  None of my respondents said “I want to learn how to do the most good with my modest means.” My course will give even them a simple framework to do this.

The American College of Financial Services asked me to contribute a piece to the quarterly newsletter of the Chartered Advisor in Philanthropy (CAP®) community (I completed the CAP® certification in 2018).  In this article, I point out that clients increasingly ask their financial, legal and tax advisors questions on how and where to give more thoughtfully and effectively – which the advisors are not equipped to answer.  I suggest that my forthcoming online course “Smart donors… Make a Difference” could solve this problem and provide greater client satisfaction.