The charitable sector is no different from the rest of the world, which currently seems to be experiencing more “unprecedented” events than usual. It is important to take a look back and think about the trends we observed in 2021 in order to better comprehend what the rest of 2022 and 2023 might bring.
Giving reached a record-high of $471 billion in 2020, fueled by the effects of the global COVID-19 pandemic. Initial predictions suggested that donating would decline in 2020, but donors reacted unexpectedly. During a very difficult time, people increased their financial support of their preferred causes thanks to generous government programs and a lack of opportunities to spend discretionary income.
Was this a COVID-19-induced “giving boom”, or would it rise further in 2021? This was the key issue on everyone’s mind. We partially found our explanation in the following data:
- Giving peaked in 2021 at $484.85 billion, or about $1,500 per person in the US; however, when adjusted for inflation, this amount does not rise much.
- Three primary reasons continue to influence giving: the COVID-19 reaction, racial and social fairness, and economic development.
As a result, three key themes have surfaced in this year’s philanthropic trends: unwavering generosity in the face of adversity, smarter charitable giving strategies, and a new generation that is setting the standard. Let’s take a closer look.
Unwavering Generosity in the Face of Adversity
The first trend is simple and encouraging: Americans are contributing more than ever! Rewind to 2020, when the COVID-19 pandemic first started to affect communities across the nation. According to the Giving USA 2021 Study, charitable giving increased to a record-breaking $471 billion in 2020 as a result of natural catastrophes and racial injustices in the news. Despite a 2.3% decline in GDP, this represented a 5.1% rise over 2019. The amount of donations made to the human services industry, which includes institutions like food banks and homeless shelters, increased significantly.
Many predicted that philanthropic activity would revert to pre-pandemic levels in 2021 after this spike. But instead, Americans increased their efforts.
According to a report by Fidelity Charitable®, donors suggested giving their favorite organizations $10.3 billion in gifts last year, which is 41% more than pre-pandemic levels and 13% more than in 2020.
Giving to charity has remained high in 2022 as donors watch the humanitarian crisis in Ukraine play out and scramble to offer aid. More and more people are searching for ways to help those in need—and ways to get to them as soon as possible—in response to such unanticipated tragedies. Donor-advised fund holders have used their accounts as “ready reserves” to provide this kind of assistance.
This ongoing focus on charitable giving supports the historical trend that Americans have typically responded to adversity with philanthropy.
Smarter Charitable Giving Strategies
While donating has increased in volume, it has also become more strategic. Donors are becoming more and more interested in more thoughtful and purposeful methods to give back. When possible, they look for ways to benefit from tax breaks and opportune market conditions.
Using a giving vehicle like a private foundation, charitable trust, or donor-advised fund is a typical initial step in accomplishing that. Most people rely on the donor-advised fund.
Donor-advised funds are popular due to their ease-of-use and low costs. This makes it simple for donors to to donate non-cash assets such as stocks, privately held business interests, or other unconventional sources such as vested shares of corporate stock from equity compensation.
Donors can contribute more and save more on taxes by using cleverer giving techniques. As individuals choose which charitable causes to support, they also gain from the ability to invest their money tax-free for future growth. Due to the prior year’s healthy market conditions, donors were able to give more and more strategically to the causes that meant the most to them. Donor-advised funds are popular due to their simplicity of usage, low costs, and ease of donating non-cash assets such as stocks, privately held business interests, or other unconventional sources such as vested shares of corporate stock from equity compensation.
For advice on how to increase after-tax cashflow while donating to a good cause, reach out to The Charitable Payraise.
A New Generation is Leading the Charge
The next two decades will see $73 trillion passed down to younger generations. How much of that enormous sum will be used for charity purposes?
In a recent Fidelity Charitable study, 74% of Millennials and just 35% of Boomers stated they consider themselves to be philanthropists, respectively. The Millennial generation, which now comprises people between the ages of 25 and 40, is bringing a new perspective to charity giving. Empowered to improve the world, they consider philanthropic causes while making daily decisions such as where to work, what to buy, and how to invest their money.
The next generation will rely on specialists to put these tax-savvy and value-based solutions into practice. In fact, compared to 59% of those in Generation X and 18% of Boomers, eight out of ten Millennials (79%) would like to work more closely with a financial professional.
With this in mind, advisors need to be proactive in bringing up philanthropic planning and providing clients with clever ideas for maximizing their donations. You may be confident that both the client and the advisor benefit from it. According to research, clients who get philanthropic planning are more devoted and willing to refer their advisor than clients who don’t.
Nonprofit Experienced a 10% Increase in Giving
Interestingly, during the previous two years, donations have increased by at least 10% across the majority of charity sectors. Contributions to religious nonprofits, which still make up the majority of the nonprofit sector but have seen their donations fall over five of the last seven years, are an exception to this trend. This is important because it shows that the increase in individual donations is diverse and not focused in certain sectors, such disaster relief or immediate COVID-19 support.
According to the most recent data, people (67%) continue to be the biggest donors, followed by foundations (19%), bequests (9%), and companies (4%). For the past few years, these trends have persisted.
These developments will almost definitely have a positive effect on charity in America in the future. We all have a vital role to play in amplifying influence and, ultimately, making a bigger difference.
Whether you are a young person just starting out, a family in the middle of legacy planning, or an adviser guiding your customers, charitable giving should be on your radar. It’s a way to do some good while reducing your taxes and increasing your after tax cashflow.
To find out more, drop us an email or give us a call.