The past few years have seen a downward trend in charitable giving. In some of the most recent data put together by the Association of Fundraising Professionals and the Fundraising Effectiveness Project, 2023 proved to be a continuation of this trend (Fig. 3). As we move into 2024, we must consider the important factors causing this trend and affecting the future of charitable giving.
A changing political landscape, the state of the economy, donor sentiment, and industry changes are four areas which present challenges and opportunities alike. The nonprofit sector has a path forward, but it needs the help of individuals, institutions, and government to get there. Let’s examine some of these challenges and some of the opportunities that may push these organizations into the future.
Campaign trails chock full of promises and the uncertainty of November’s outcome can have an impact on charities, both positive and negative. Following the 2020 presidential election, CCS Fundraising examined the effect of campaign years on charitable giving. While no significant decreases in charitable giving were found, CCS did find that “in more recent presidential election years, it appears that political giving is making up an increasingly larger percentage of all giving during the months surrounding the election, hovering around 12% in the fall of 2016 compared to around 8% in the fall of 2004.” Additionally, they point to data from American National Election Studies (ANES), which shows 12% of U.S. adults report donating to a political candidate in 2016, compared to 6% in 1992. The report continues, “By contrast, the percentage of U.S. households donating to charity decreased from 66% in 2000 to 53% in 2016.”
An election year can also have an impact on the demographic of donors. Looking back to the 2016 presidential election that resulted in a party change, Giving USA reported a shift toward younger generations opening their wallets, especially toward more progressive-leaning charities. They reported that Gen Z and Millennials are more likely to give charitably to “right the wrongs in society” compared to older generations according to the same donor study. Whichever way you look at it, 2024 will bring uncertainty for a vast swath of the nonprofit sector, making planning and charitable spending more conservative and less dependable. It’s worth noting the impact of “rage giving” (Fig. 1) which can cause donors to funnel more money into organizations that align with the losing political party, especially those perceived as being politically progressive or liberal.
CCS also cites a 2019 analysis by the Chronicle of Philanthropy, which found, “On average, nonprofits associated with the opposite political ideology of the winning candidate saw a 57.55% increase in contributions compared to the previous year. Organizations associated with the same ideology as the new president saw a 2.9% decrease in contributions on average.” So although giving throughout the campaign year may remain largely unchanged, the outcome of the election could certainly take its toll on the charitable giving landscape.
Finally, Congress and the White House are responsible for the fate of many state and federally funded programs. These programs, which not only provide direct support to Americans, but also to nonprofit organizations, could see funding dry up. Combine that with the dwindling of pandemic-era relief funds, this could create a perfect storm for organizations that rely on such funding for a large portion of their operating budgets.
We’ve seen recently how current world affairs can affect donor sentiment in some of the most high profile universities across the country. As the Chronicle of Philanthropy points out (4), polarization can lead to many donors, big and small, pulling their contributions. The amplification of a polarized political atmosphere proves dangerous for even those organizations with the heftiest pocket books.
(Fig. 2) The nonprofit sector has most certainly felt the effects of inflation. Heightened price tags have put pressure on labor costs, stifled the ability to serve communities, and exacerbated the need for such programs in the first place. Sara Herschander of the Chronicle of Philanthropy wrote a recent article titled, “The Fiscal Cliff Has Arrived — and With It, Cuts, Layoffs, and Crisis. A Look at 2024’s Hunt for Revenue.” This article summarizes the negative effects the past few years have had on the nonprofit sector. Inflation has been a major player, but coupled with staffing shortages and overall decline in giving, the past few years have eroded operating budgets, especially for charities already facing cuts in funding.
Giving USA (3) recently outlined the decline of charitable giving by individuals. Their studies showed the following:
-Donor retention rates are the lowest they’ve ever been, standing at just 42.6%.
-Dollars are down 3.4%, marking a year-over-year decrease that has only occurred four times in recent history.
-Donors are down, with less than 50% of households giving, a significant decline from the 1980’s which saw 80% of households giving.
Why the decline? We can certainly look to inflation as a main player. However, AFP also points to the lack of grassroots engagement and the lack of agility and adaptation within the nonprofit sector as reasons behind the decreasing numbers.
On the flip side, in 2023, foundations, which make up around 15-20% of charitable giving, saw a 17.3% increase in their asset size from 2022. However, when you look at this in comparison to the nearly 20% decrease in asset size that foundations experienced in 2022, it may seem less encouraging. Whatever the market looks like in 2024, foundations are required by federal law to distribute at least 5% annually, so that could lead to a slight increase in foundation giving in 2024 – if the markets do well. Regardless, not all foundations follow the 5% rule, and some go above and beyond that. But if the conservative nature of endowment spending tells us anything, even these more ambitious foundations may fall closer to the 5% in coming years.
What does this mean for 2024 and beyond? Nonprofits may look to build upon past successes, embrace new trends, and either lean-in or completely distance themselves from the fraught political landscape.
There are a ton of resources on Donor Advised Funds because they have grown in popularity over the years. Their flexibility, tax benefits, and ease of set-up have made them the charitable giving vehicle that donors are contributing to the most, according to the Chronicle of Philanthropy. Nonprofit marketing and communications can continue to shift resources into this space, partnering with brokerage firms and community foundations to finetune the giving experience for their donors.
Qualified Charitable Distributions, or QCDs, are another popular, and tax-advantageous way to give directly to a qualified charity. QCDs allow individuals over the age of 70 1/2 to give to charity while simultaneously reaping the benefits of lowering their taxable income. In a nutshell, individuals who are at least 70 ½ years old may donate up to $100,000 total to charity directly from their taxable IRA, rather than taking the distribution and paying taxes on it themselves. In 2022, the SECURE Act 2.0 opened this up to allow QCDs into charitable gift annuities (CGAs) and charitable remainder trusts (CRTs). While these are less popular giving vehicles, it is worth keeping an eye on how and if Congress makes further changes to the QCD rule.
It may be surprising to some, but the volatility of cryptocurrency is now making its way into the charitable giving world. According to Giving USA, “Many crypto holders want to donate a portion of their holdings to benefit nonprofits and receive tax benefits for donating an appreciated asset. The number of crypto-gifts is on the rise and is expected to grow in the coming years.” The volatility of this asset class may not seem like a match for funding critical societal programs, but nonetheless, here we are.
Something I don’t think should be surprising to most is the use of Artificial Intelligence by nonprofits. Technological innovations, such as ChatGPT, can streamline processes that are widely used by charities. Tasks such as crafting thank you letters, grant writing, and general research are a few of the ways charities can use AI to help with administrative burdens. To what degree they can help versus harm is another question. Certainly many smaller organizations can take advantage of this technology though, given time and staffing constraints.
This last trend is not a charitable giving vehicle, but more like a distant cousin in the family tree of activism. Impact investing has grown a lot over the past few years. Jeffrey D. Byrne writes about it in his Future of Philanthropy article for Giving USA. “Thanks to better data, transparency, and other tools, we have an expanded ability to demonstrate our values through our assets.” Investors can participate in the market in a way that potentially generates social and environmental benefits, as well as positive returns. On the other side of the coin, the foundations and nonprofits themselves “can shift their portfolios away from investments that can have a negative impact on the communities they serve, and more towards investments that positively impact their targeted communities.”
Let us not forget the reason why this topic is discussed and studied at length in the first place. The United States government is an imperfect machine. There are too many people living in this country who get left behind. Regardless of the reason or who is to blame, the bottom line is that there are millions of people who rely on services provided by nonprofit organizations. These organizations in turn rely on donations from individuals, foundations, and corporations, along with government funding, to fill in those gaps. It would be a complete disservice to the American people to turn a blind eye to these issues.
These are organizations and services that need help. Their employees and those they serve depend on it. 2024 is a great year to consider adding charitable giving to your financial plan.