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by Robert R. Sharpe, Jr. and Barlow T. Mann
The past year has been one of extraordinary change. We have witnessed a bubble bursting in the housing market, a
meltdown in the financial markets, subprime loan losses, increases in unemployment, a credit crunch,
increased stock market volatility, and a variety of other economic woes.
In spite of these events, there are indicators that giving in America held steady or even increased in 2007.
Recently released figures from the Council for Aid to Education (CAE)
reveal, for example, that giving to higher education actually grew by 6.3% in 2007. (See
www.CAE.org)
Gaining perspective
The past 20 years have been among the best ever for charitable giving. (See the chart
below.)
We have to look back a number of years to find an environment comparable to today’s. Certainly
the period following the 1987 stock market crash was challenging. Investment markets lost over 25%
of their value in a matter of days in October of that year, and trading
was suspended on stock exchanges in the midst of the busy year-end giving season. Nevertheless, overall
giving dropped just 1.3% in 1987, the only decline in overall giving posted since 1969.
The recession of the early 1990s ushered in another period of difficulty. Despite that downturn in the business
cycle, there was little impact on charitable giving.
To find a period more similar to the one we face today, it may be helpful to look to the mid-1970s. At that
time, America was emerging from a long-term conflict in Vietnam, and the Watergate scandal was unfolding.
The economy was mired in “stagflation” as the effects of increases in oil prices in the wake of the
1973 oil embargo crippled the economy. The “energy crisis” grew while Americans shivered through cold
winters and waited in long lines to purchase gasoline. Inflation picked up steam and was beginning to take
a serious toll on the life savings of many. By December 1974, after adjusting for inflation, the Dow had
fallen nearly 60% from its 1965 peak value.
Fund raising was indeed a challenge at that time, but giving in America still grew 1.1% in 1974
despite the dismal conditions of the period.
Real wealth remains
It is helpful to focus on the fact that the long-term trend in investment values has been up, and
those who have regularly invested over the years have still experienced significant increases in their
wealth. (See chart below.)
A person who invested in a Dow index fund in 1996 still enjoys a 100% appreciation
over the ensuing time period. A $1 million investment in the Dow in 1987 is still worth nearly
$5 million. Net household wealth in the United States reached an all-time high in 2007, and the
number of millionaire households exceeded nine million.
Capability to give
What this adds up to is this: many Americans still possess significant amounts of wealth, and the most committed donors may be
among that group.
Government studies reveal that many of the wealthiest per capita households in America are
headed by persons age 65 and older—a key group from a fund development perspective.
The good news is that this age group may actually have suffered the least during the current
economic downturn. They are already retired in most cases, so they do not have to worry about losing
their jobs. They are not commuting every day, and are thus not experiencing the full impact of increased
energy prices.
Older individuals do not tend to invest in highly speculative investments, and their portfolios typically
contain higher percentages of bonds, cash, or cash equivalents. Many in this group are also just beginning
to take required minimum distributions from retirement plans, further increasing their discretionary (and
donatable) income.
Lower interest rates in recent months may actually increase the value of bonds, and donors who have
moved into intermediate-term CDs and other relatively longer-term investments in recent years may
bypass the immediate impact of lower interest rates on their income.
Facing reality
What is called for now is a realistic and sober approach to the realities confronting us. Funding
methods that worked well for the entire careers of some fundraisers may no longer be as effective.
Extravagant events could increasingly be considered wasteful and in bad taste. Campaigns based on
selling social recognition to those seeking to make a “statement” with their newfound wealth may
no longer be practical.
On the other hand, the past reveals that funding strategies rooted in helping committed persons
support causes they believe in will continue to prosper.
Here are some steps we can all take today to help assure the best possible results for the remainder
of this year and beyond:
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Strive to devote as much time to thanking donors for gifts as you do
asking for gifts. To find
the people who still have the resources to make gifts, turn your attention to those who
just made them! They have just proven they have the resources to give in today’s environment.
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Take care to serve those who have given consistently over the years. In difficult
times, your long-term donors will be those most likely to stay the course.
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Help donors understand how best to make their gifts today. For example, many donors now have
large cash reserves after selling investments that were not performing well.
Their natural inclination may be to make gifts using a portion of that cash. It
might be better to give securities in which they still have gains and use their
cash to purchase the same or different investments, thereby diversifying their portfolio
and/or enjoying a new, higher cost basis.
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Focus on older donors. As noted above, donors in the sixty-and older age group are among the
wealthiest generation in history. They may also have suffered fewer losses as their homes may
have already been sold at peak values, and they may have less exposure in higher-risk stock
market investments.
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Be flexible on the timing of gifts. Remember that making a gift through a gift annuity, trust
arrangement, or provision in their will can be possible for a donor even if they cannot make
a large gift today. Those who have remembered you in their estate plans may be your best
major gift prospects when times of prosperity return.
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Look to the past for direction. If you are new to your role, seek out someone who worked in
fund development for decades and has been successful over the long-term and take them to
lunch.
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Resolve to not just work around the challenges, but to work “above the circumstances” that
present you with difficulties. Now is the time when proven leaders once again will excel and
a new generation of managers will be tested.
These are not the best of times, nor are they the worst. History reveals that charitable giving is
likely to continue—and perhaps even grow—in the current environment. That is because much of the
remaining wealth is in the hands of those who did not buy into the “easy money” ethos of recent years.
It is owned in many cases by those who understand the true nature of wealth—and respect it enough to
guard and preserve it.
The truly philanthropic have always been found among the ranks of such persons, and it remains a
rewarding and noble vocation to serve them as they continue to provide much of the funding required
to build and maintain our social infrastructure.
Editor’s note: This article is an update of a series of commentaries that Sharpe has
published on the state of the economy and its impact on charitable giving.
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