#160 The End of Year Giving Trends to Consider With Laura MacDonald, Board Member for Giving USA and Founder of Benefactor Group

Dec 26, 2023

Laura MacDonald joins us to share giving trends as addressed by the most recently released Giving USA report. One issue that they discuss is that overall giving is down in the United States by 6.4%. Laura and Sybil discuss what to consider in this new era of giving, especially in the era of the “Mega Donor” and the rise of the Donor-Advised Fund. Laura also delves into the specific sectors and interest areas that received funding. 

Episode Highlights:

  • Giving trends that have risen and fallen.
  • The issues that are receiving the most support.
  • The interesting rise in giving from the “Mega Donor” and from Donor-Advised Funds.

Laura MacDonald Bio:

Laura MacDonald, Board Member for Giving USA and Founder of Benefactor Group, has earned a national reputation for her dedication to the nonprofit sector. She is a Certified Fund Raising Executive (CFRE) with decades of experience in nonprofit leadership, fundraising, and philanthropy. In 1999, she established Benefactor Group to serve the needs of those who serve the common good.

Laura’s work with clients combines her talent for identifying innovative and practical strategies with data-driven decision-making. She has guided clients to achieve unprecedented successes: the largest contribution ever to an arts organization in central Ohio; consistent increases in annual fund revenue for a women’s fund; an innovative digital giving strategy for a conservation organization; a reinvigorated board for a literary society.

Laura is constantly curious about trends in fundraising and philanthropy and an astute storyteller. She is a frequent speaker at local, regional, and national conferences (AFP, AAM, AMDA, Fundraising Bootcamp, etc.) and has addressed hundreds of nonprofit boards. Her articles related to advancement and philanthropy have appeared in Advancing Philanthropy, Nonprofit Quarterly, and other professional publications. A past chair of the Giving USA Foundation, she contributes to Giving USA: The Annual Report on Philanthropy, the seminal study of the sources and uses of charitable giving in the United States, and is consulted widely by publications such as The New York Times, Ms. Magazine, Penta Barron’s, and the Chronicle of Philanthropy. She is a member of the Association of Fundraising Professionals and was named her chapter’s “Fundraising Professional of the Year” in 2007.

 

Links:

 

If you enjoyed this episode, listen to these as well:

https://www.doyourgood.com/blog/110-Laura-MacDonald

https://www.doyourgood.com/blog/112-Michael-Chatman

https://www.doyourgood.com/blog/99-Meta-Loftsgaarden

 

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Sybil offers resources including free mini-course videos, templates, checklists, and words of advice summarized in easy to review pdfs.    

 

Check out Sybil’s website with all the latest opportunities to learn from Sybil at https://www.doyourgood.com 

 

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FULL TRANSCRIPT:

Laura, welcome back to my podcast. I'm excited to talk to you because I will start asking you every year. Last year, I asked you to talk about the trends in giving in December and this year, I will ask you the same thing. 

You are with the benefactor group and work with Giving USA. I am impressed with the Giving USA yearly review that looks at giving across many sectors. I have to tell you, I just ate up all the data, and I have so many questions for you. I can't wait for this discussion to discuss trends and giving in the United States.

So, Laura, before we do that, I just want my listeners to be like, oh my gosh, we have to stay and listen to the whole thing. Before we do that, though, I want you to remind everyone if they had, I didn't have the benefit and pleasure of listening to your interview that I did with you last year. Talk to my listeners about who you are and what made you so interested in charitable giving in the United States.

Thank you. Well, Thank you for having me back. And I, too, enjoyed our conversation last year and am delighted to continue talking about it this year. My friends and colleagues will tell you it's something I'll talk about at the drop of a hat.

So, thank you for giving me this opportunity.  Benefactor group is a form of a firm I established in 2000, from a background in fundraising, higher education, arts and culture, and some previous consulting. And when I established the firm in 2000, we sought to work with organizations to fuel their missions. Our firm motto is that we serve those who serve the common good. And I feel passionate about that work. I've been drawn to it throughout my entire career, and now I'm just fortunate that I've been able to build a boutique practice with 25 other colleagues who work with zoos, museums, universities, hospitals, Goodwill Industries, and food banks, all over the country and occasionally all over the world. 

It's wonderful work—a lot of times in big fundraising initiatives. Other firms like ours across the country have come together in a professional association called the Giving Institute, which used to be called the American Association of Fundraising Council, and back in the 1960s, that group started an annual report on the sources and uses of philanthropy in America called Giving USA.

So it's been published since the mid-60s. For the last several decades, it's been published in partnership with India, Indiana University, and the Lilly Family School of Philanthropy, which does the research and writing. It does a great job of that and brings a lot of credibility to the methodology and the final product. And so, the Giving USA Foundation is the nonprofit affiliate of the Giving Institute.

I had the privilege of chairing the Foundation Board for a couple of years, and I'm now I’m  the immediate past chair. It was the best job, but throughout my career, it was a report that I considered a credible source that would help shape the guidance we provide to anybody trying to raise money to give money thoughtfully.




Thanks, Laura. What's interesting about the journey is how deep this research goes. So, let's talk about it a little bit. I was interested in some of the top lines in your most recent report and said, I know it's a team effort. It's not just yours. Right. But I want to talk about it. I'll just do it because I'm talking to you. Overall, it looked like it was down slightly from the previous year.

And so I want to talk about that. I want to talk about the sectors that have gotten money and what's up and down. It looked like donor-advised funds were on the rise. Pretty interesting. I also want to talk about the trends to track; you talk about that a lot in the review about looking at GDP and S&P and all these acronyms we will talk about. A little. More so, and all these other fun and interesting things too. To me, it's fun. I love geeking out on this. Stuff, I think. I've said so before. I hope my listeners are going to have fun with this.

Great. And we saw during the pandemic two years of remarkable outpourings of generosity. So, the growth from 2019 to 2020 and from 2020 to 2021 was remarkable, historic, and huge. We’re seeing that, like any other economic model, it reverts to the mean, so it's unsurprising that we had a little pullback after those two years of remarkable growth. Giving. So it went from something like over 500 billion to 2021.

So, from the 22 data points we have to look at, the estimate is that total charitable giving was $499 billion. So yes, it was a pullback, but after two years. Of historical growth, and in a year, we face some challenges from the stock market, inflation, and other socioeconomic forces in the fabric of society.

Yeah. And I was interested in the context of this. If you look at your graph on page 42, you have a graph that focuses on giving from 1982 to 2022. And so it does give perspective.

The number of people who are giving is declining. I think many organizations will begin to face donor concentration risk, and my CPA auditor and I were talking. She talks about how when they audit a business if a certain percentage of their revenue comes from only one or two clients, the auditors must state that as a risk in the audited financials. We're not stating that risk in the financials of nonprofit organizations, but many of them are beginning to face that donor concentration risk. If a small handful of donors are responsible for 80% of your annual revenue and one of those donors dies, they will be financially impacted. You're in trouble because you don't have time to. It will be gifts to replace that $100,000 donor.

So that's a risky financial model. That's first and foremost. It also doesn't develop a pipeline for the future. So yes, you may be fortunate to have some baby boomers who are. Make those generous gifts today, but if you're not paying attention to the Gen. X,Y,Z donors, who admittedly can't give as much today, raising money from them is more expensive than wealthier households. But you're going to damage your fine. 

So those are two practical reasons that can maybe drive some decisions about strategy and investment strategy. There's a societal norm here: the more people participate in pro-social behaviors like charitable giving, the stronger we are.

So yeah, Thank you for this. This is important. I mean, in the report, it says individual giving was down 6.4%, and I do love your recommendation, though, because you're looking at your monthly giving grew. It's a solution to sort of try to think about. And donors, who? They are more likely to withstand that if they budget into their, you know, daily lives. They're more likely to keep giving over and over.

So here's some. Those are some really important strategies. I appreciate what you're saying, though. As someone who works with philanthropic organizations, I can see where foundations can focus on one issue for 3 to 4 years and then move on to a different one.

And so if those nonprofits don't have strong individual donors who just love them and fund them monthly or year by year, it can be a real challenge. Thanks for bringing that up. 

Can we talk a little bit … Because this is along the lines of this conversation, the mega-donor you mentioned in the report is the big donor. How does that influence you as a person? Individual donors. Has that influenced the overall conversation here?

It has an outsized influence on all of this. So yes, for purposes of the giving you a say report, a mega-donor is described as a gift, a singular donor, or a singular gift that would move the needle by 110th of 1%.

And so, I think, in the most recent year, that was a gift of somewhere in the neighborhood of $400 million. So that's what we call them because those are outliers Gifts that are Calculated separately in the model we did. In general society, there's probably a different definition, and the definition of a mega-donor probably is a gift, more like in the $10 million to $25 million range, which is a lot of money for many organizations.

But we find that in any organization, whenever we're working with a nonprofit, we always look at the Pareto equation, which is, you know, the 80/20 rule. That is the Pareto Equation Principal. So, how many donors? What percentage of their donor file is providing 80% of their revenue?

So we tally up, you know, their biggest donors. And we're seeing organizations where 4–5% of their donor base provides 80% of their revenue. So, it's having an outsized influence, and I think several factors exist. Certainly, wealth disparities exist—one of them. And there's not much that an individual nonprofit can do about that in the short term. But I also think that our behavior in the nonprofit world is part of it. The most efficient fundraising we can do is to get five gifts of $100,000 rather than a100,000 $5 gifts.

And so it simply costs more money, which means that as leaders of nonprofit organizations, we are people who sit on boards at nonprofit organizations and look at things like their financial reports or go to some of the charity services, like Charity Navigator or Candid, to take a look at nonprofit performance.

We have to stop looking at the overhead myth. It is not about overhead because if you only look at overhead, I will talk to five donors for 500,000 dollars, which harms my organization's mission and our future. As a nonprofit organization, it will cost me more money to have robust middle- and broad-based giving programs.

Yeah, I didn't. Yeah, Laura, I didn't see you talk about this in the report. But just while we're talking, it's hitting me. Maybe This compound challenge, where the individual donors are declining, maybe, in part, be our nonprofits doing enough to dig into all those potential donors. Are they starting to lean more into the mega-donor and not investing as much in the other side? This could be to our detriment over time. I'm wondering out loud; no science.

I have experienced plenty of organizations where I would describe their fundraising as big game hunters. That's all they're interested in. And even if they say, Oh no, we have these other things they give lip service, the people who work in the annual giving don't get promoted into the most high-paying jobs and fundraising. Major gift officers do. 

People who work in the middle donor society don't get to come into the boardroom to present to the board. Their successes are the major gift officers do, so some of it's cultural, too, and I think I need to work on all of that,

And this is interesting. Thank you for that. So, let's get into the sectors now in the report. It discusses the different sectors and what's up and down this year. I'd love to hear your thoughts on how giving is going.

You are doing great. So if we look, and I'm looking at a chart on page 38 of the book for those of you reading along, You know, you'll see that over the next two years, every sector is up. So cumulatively, every sector was up in the two-year cycle from 20 to the end of 22. And if you look only from 21 to 22, we see A few declines—a decline in education; I think that's a couple of things.

First, education grew by 22% the previous year, and again, economic models revert to the mean. You knew that education donors would take a breath after that outpouring of support. In addition, I think in times when there's a challenged economy, donors tend to pull back from things like glitzy building campaigns. And we know that that tends to happen greatly in higher education, with their big capital campaigns. Another sector with a pullback was the public-sector benefits, a problem for everyone.

So, what the heck does public society benefit from? It's a grab bag of organizations. It's things like the United Way. We know that United Way's business model has been declining. It had a bit of a burst of energy around the pandemic because people used it to do community-wide responses, but now that that's gone away, you know they're no longer receiving that kind of revenue. It's things like voter registration, any kind, or any of those sorts of movement organizations. And they've had a bit of a moment. Especially anyone that we're looking at: equity and justice in 20 in21. And so, they've pulled back a bit.

But I think the big driver here is that gifts from the big national donors influence a lot of giving to public society, advised fund sponsors, Fidelity, Schwab, the National Charitable Trust, you name it. 

What we see with donor-advised fund behavior and what I have, actually two donor-advised funds, and so what we have experienced as donor-advised fund advisors is that. We tend to fuel those donor-advised funds when we have windfalls when we have up years in the market, and we know that we want to set that money aside in the donor-advised fund. One of mine is to match your employees' gifts, and we want to ensure that you always do that.

So, we fuel the donor-advised fund in Goodyear to match gifts, regardless of the firm's performance. We didn't fuel our donor-advised fund last year, nor did my husband and I take money. He's out of our investment accounts to put into the donor-advised fund because of the behavior of the market. And so that's a big reason why public society with it struggled. 

The problem is wide affecting animals and the environment. I think we all know that there is a climate crisis, and hopefully, philanthropy is among many actors that have a role in addressing that. But also, one of the things that we know is that much of the work that's being done there is being done, for example, in academic studies.

So, if somebody did support climate research, they were probably counted as giving to a college or university. But those were the only three that declined, and even in those cases, they had grown remarkably—the private prior year. So, after two years, there's still growth. The big winners included, to the extent that there were some foundations.

So, give into foundations. And I think some of that may be true. The other big growth area was international affairs, such as collaborative initiatives around climate science. International fairs tend to be driven by disasters, usually natural disasters. In this case, I think it was driven by a disaster caused by human beings, namely the conflict in Russia's invasion of Ukraine. So, a lot of giving is needed to support that.

It's also the first time the top recipient of charitable dollars is religion, and indeed, it was in 2022, as it has been, although it's been losing market share, and that's almost all giving to houses of worship of various faiths. 

But for the first time in years, education is not the number 2 recipient, which traditionally has been largely because of the big higher education camp; the second largest recipient was Human Services. I think that also reflects some generational shifting in behaviors. 

We saw that baby boomers were fairly loyal to their alma mater. We're seeing that rates of alum participation are plummeting. At every campus in the country, younger donors tend to lean more into some things, like basic human needs, International affairs and the environment.

All are fascinating. There are so many things that Laura, just to go out and talk more so we can talk about this for hours. 

Let's talk more about new trends to track. I found this interesting in the report. It talks about how you noticed. If you look at GDP, S&P, or disposable income, corporate pre-tax profits are some of those trend lines either match or have some, you know, interesting questions about how they match charitable giving over time. Can we talk about that more?

Sure. Absolutely. Yes. Those are the big macroeconomic factors that influence giving, and I will say that as bullish as we are about giving and as excited as we are about giving, see the growth; it hasn't budged as a percentage of GDP.

So it tends to stay between 1.8 and 2.2% of GDP, and that's a metric that we should try to push on. And it was down a little this year as a percentage of GDP. I think it's around 1.9 or 2% of GDP this year, but that's a big one. That's a big factor.

The equity markets are a factor, and we think they're becoming more and more influential as charitable giving is concentrated amongst high-net-worth households. Those high-net-worth households, their assets, and their retirements are all greatly affected by the equity markets ' influence, and even though we think that what we're seeing is that the recovery and giving lag the recovery of the equity markets by about nine months, we hope any equity market recovery lasts longer than nine months.

So, for many donors, it's not even the availability of resources to fund a charitable gift. It's uncertain that they're frozen by uncertainty and choosing not to make decisions. And so that's what we think about how the equity markets affect charitable giving.

I've seen that play out. I mean, that's interesting. Yeah. Sorry. You're going to keep going. In this, you will talk about disposable income and corporate pre-tax profits.

Yeah. So, disposable personal income influences the everyday donor and the everyday household. It's how much money is left after they buy groceries. And, you know, I paid the mortgage, the car loan, and everything else.

And so it moves the overall needle a little because, as we've said, the mega gates have become so dominant that everyday gifts are so important. After all, so many charitable organizations don't have as much influence on the top-line numbers that we see. Still, I think that's where we saw the impact of inflation eating away at their confidence or their actual ability to make gifts—

Corporate pre-tax profits. One would hope that charitable giving would be even more closely tied to that because if it were, we would see huge growth, and corporate giving is currently less than 1% of corporate pre-tax profits. 

There was a guy named Ken Dayton. He started a little chain of stores up in the Upper Midwest Department stores that eventually all transformed, and it's now Target Corporation, such a big company. He used to go around the country, championing 5%. That corporation should give 5% of their corporate pre-tax profits, and, for a while, there was a 5% club, and it was a badge of honor. And now we see very few corporations doing that. It was about 2% of corporate pre-tax profits in the 1990s and early 2000s.

And one of the factors that could increase corporate giving is very unpopular. And that is to increase taxes on corporations. When taxes go up, the cost of giving goes down. But I don't think too many proponents will be out there arguing that we should do that simply for charitable giving sake. You'll get as many enemies as you do friends if you do that. 

But corporations’ pre-tax profits. And there are also not a lot of ways to hold corporations accountable. So, we heard all those pronouncements of promises to devote millions of dollars to racial equity in the wake of the murder of George Floyd. You don't care so much about that now. While some people have tried to track that, it's difficult to track, and to their credit, for many of the corporations, that wasn't simply charitable giving; a lot of that was that we're going to invest more in workforce development, in our workforce, and pay equity with our people. 

And that's outside of the charitable giving sphere and important work. So those are my thoughts on corporate pre-tax profits. Clearly, you know up is better for charitable giving than down. But even there, we see so many corporate headquarters being consolidated.

And so, in a city like Columbus, OH, where I live, we still have some Fortune 100 businesses headquartered here. Many others have merged and consolidated in just a handful of cities. In America. We see a bright light in entrepreneurial activity; certainly, we've seen that here in my hometown, and you've probably experienced this too. My experience is that working with an entrepreneur who's giving the money that they earned is a very different experience than working with either a corporate giving officer or an individual who is fortunate enough to inherit their fortune. They're often younger and can make decisions quickly without much red tape, and BI finds that they can be very generous. I mean, they're risk-tolerant people. And know that. They can always make more money than the person who inherited their wealth.

I feel a great responsibility to retain that nest egg for future generations and give a portion of it. Certainly, but protect it more than the entrepreneur who says, Oh, I'm going to replenish that bucket. I have confidence in myself in my enterprise, and more and more, we see that corporate giving, which does occur, is driven as much by workforce and employee retention as it is. Any kind of marketing? If they solely want more eyeballs on their brand, there are more effective ways to do it than making a charitable gift.

But when they can align their giving with the interests of their employees and have the employees see the company as a good corporate citizen, it increases the likelihood that that employee will be retained and productive. So, we can lean into that and talk to corporations about that a little bit. The other thing, frankly, that we have seen is that some corporations may feel passionately. I know more than one who feels passionate about women's autonomy over their own healthcare choices and the fact that you know that influences that impacted half of their workforce, so they support planned parenthood, but they don't do it directly; they do it through a donor-advised fund so that they can make that gift anonymous.

Thank you for all this great conversation. Let's talk about the last thing I wanted to get into. And that is why the number of charities is increasing. So it's a 3.4% increase as per your report, I'm just curious how that fits into the overall support equation for charities. And is it a good thing that the number of charities is increasing? Is it a bad thing? Is it sort of not something to worry about? What about you? Thoughts about that?

Like most other models in our economy, most new charities have annual revenue. Less than 50,000 dollars. They're tiny. They're blips, but somebody's passion drives them. So I think they might be passion projects, or they're the local PTA that has created a foundation, or they're, you know, some other form of civic engagement; I'm fine with all of that. I am not someone who buys into this notion of donor fatigue. 

I see new things spring up and capture the attention and imagination of donors, and they lean into them. Let's not blame the donors. If anything, it's because nonprofits use the same tired messaging and techniques. Maybe it's, you know, that's the side of the equation we need to look at.

So, I think it's fine. I do think that there are times when somebody starts. I was talking to somebody recently, and they were passionate about starting. They were trying to start a new nonprofit to raise funds for research on a disease they discovered was affecting their family. And I thought to myself, you know, and I did not want to disabuse him of this notion. He was passionate about it. His children's lives are affected by this. But I thought You don't need to start a new nonprofit for that. You could find a home at any number of pediatric health centers, academic research centers, and other ways to achieve that goal without taking on the additional burden of staff, administrative staff, audits, nine 90s, etc. You could find a home somewhere else.

So I would say stop; it's a It's a passion project. Great. Pursue it. Do you need to form a new nonprofit to do that? 

So, as I said, our good friends at Indian Indiana University, especially Dr. Ona Osoli and Dr. Anna Pruitt, do much of the report's content and the estimation of the amount given. We then partner with them and have an editorial review board comprising individuals employed in giving institute firms. 

Voluntarily, you know, the whole giving USA side of the House is voluntary for all of us. We and, voluntarily, some of our employees step up and say I will review Chapter X and contribute some of those practitioner highlights and good-to-know information.

So the more practical application of the data and resources we're reading through in the rest of the report comes from, I know, I have a couple of members of my team who, you know, are doing this after hours. That's fine with me if they do it on company time. Still, they're adding it to their list of other things because they're so passionate about it, which gives me hope that giving you SA will continue to be this amazing longitudinal study.

That's great. Well, I can tell you that a lot is put into this, and you did not just phone it in. So before we go, Laura. Do you have any high-level wisdom from my audience that you'd like to impart?

First of all, thank you again for the opportunity to chat, and like you said, someday we'll grab a cup of coffee or a glass of wine. Wine and just geek out on all of this. And as your audience thinks about it, I think to be an informed donor is to be a better donor and to be a more fulfilled donor. 

A separate report that Indiana University put out found they did a statistically significant sampling of the American population, 60% of whom said that they give. It's a little higher than what we see and what I think they do, but maybe not. Every year, only 20% of them consider themselves philanthropists. 

So I would say that maybe we're using the wrong language to talk to people. About charitable giving, if they give but don't consider themselves philanthropists.

So I would say to be inclusive in your giving if you have the money to make some of those larger gifts. Know that they fuel important missions and advances in our society and bolster the confidence of the everyday donor, so don't be afraid to make those gifts and stand up and be recognized for making them. And doing that in a way that says we were delighted to be part of a large community of donors who helped to make this happen because we know that while we can make this larger gift, the 50, 100, and $250 gifts are also important.

So, I think practicing inclusivity in that way will encourage the next generation of donors. The other thing you and I have talked about is, as with any other business model, the most expensive part of fundraising is donor acquisition. Right

So think about that from the donor perspective and say, I want Charity X,Y,Z to be efficient and impactful.  

So, the best thing I can do is vet them thoroughly, and if I believe in their cause and believe that they're pursuing it effectively, I will stick with them. I'm not going. To, you know, follow the bright, shiny object and give to a new thing every year. I'm. I want to be a loyal donor, one that they can count on over time. I will have transparent conversations with them about how much longer I think I can support them or whether or not I'm willing to consider giving some money to an endowment to sustain my support after I'm gone rather than just cutting them off at some point. I will help them replace my support by ratcheting down slowly devolving grants, things like that, so that if it were $250,000, I would go to 200 and 150. I'm not cutting them off cold and maybe allowing them to use some of that as a matching or challenge pool to invite new donors.

All these ideas are fabulous, and I will have so many links in this podcast interview. I have many links, so I hope people check out our show notes so they can figure out and go to all the different places you referenced. And thank you so much for your time, Laura. This has been delightful, and I can't wait until next year when we can check-in. Again, you're on the hook. Year now. Good.

Thank you. Also, as I said, I love to talk about this stuff, and it's very gratifying to be at the point of my career when possible. Lean into it.