Average donations to charity by wealthy households shot up 28 per cent last year to $68,580, according to a new US study of high net worth philanthropy.

Average donations to charity by wealthy households shot up 28 per cent last year to $68,580, according to a new US study of high net worth philanthropy.

Significant shifts as well as consistent themes in giving behavior emerged, providing valuable insight that may help inform strategies among non-profit professionals, wealthy donors and charitable advisors alike. 

The 2014 US Trust Study of High Net Worth Philanthropy, conducted in partnership with the Indiana University Lilly Family School of Philanthropy, found that an overwhelming 98.4 per cent of high net worth households made donations in 2013 - the highest rate of participation in charitable giving since the study began in 2006.

Average giving as a percentage of household income did drop however by one percentage point, as increases in income levels slightly outpaced that of giving levels.

With that said, 85 per cent of wealthy donors plan to give as much (50 per cent) or more (35 per cent) in the next three to five years. Top reasons for this include “increased financial capacity” (85 per cent) and the “perceived need of the non-profits or causes” they support (48 per cent).

In other significant findings, volunteerism remained strong: 75 per cent of respondents said they volunteered with at least one non-profit in 2013. Interestingly, a reversal of trend in terms of what prompted respondents to volunteer emerged, with more people reporting having done so through their own initiative in 2011 than in 2013. 

“As the economy improves, I think non-profits are better able - in terms of their own staffing and strategies - to approach and engage wealthy households both as donors and as volunteers,” Dr Patrick Rooney, associate dean for academic affairs and research at the Indiana University Lilly Family School of Philanthropy, told Family Wealth Report.

Meanwhile, education was the charitable sub-sector supported by the largest percentage of households: 73 per cent of respondents gave to higher education and 60 per cent gave to K-12 education last year while that sector also received the largest share of dollars (27 per cent) among all causes.  

Strategic giving

It was found that the majority of wealthy donors (73 per cent) have a specific strategy to guide their charitable endeavors. Households with a net worth of $1 million or under were however less likely to have or plan to use a giving vehicle (31 per cent), compared to those with $1-5 million (51 per cent) and $5 million-plus (69 per cent).

“The key is to be an informed donor; to be applied to the task, to make sure you’re goal-oriented and strategic, and that you’re getting the right advice so you can achieve the greatest impact and receive the most personal reward,” Claire Costello, national philanthropic executive at US Trust, told this publication.

Indeed, over half (57 per cent) of wealthy donors used a giving vehicle in 2013, or plan to establish one to attain their charitable goals going forward. Other related trends in the use of giving vehicles (such as private foundations, donor-advised funds and charitable trusts) include that respondents favor donor-advised funds (16 per cent), followed by private foundations (8 per cent) and charitable trusts (4 per cent).

Interestingly, although 84 per cent of wealthy donors claim to be aware of “innovative” means of advancing social or charitable goals - such as via socially responsible investing, social impact bonds or mission-related investing - only 13 per cent currently use such approaches.

“This is clearly an adoption issue rather than an awareness issue,” Costello said. “It may just be the pace of things when it comes to these new tools. From our experience, it is a wave yet to come - but it is coming.”

Rooney agreed that this could be perceived an opportunity for providers of these giving vehicles to tap into the high net worth sector to generate more inflows into charitable causes.

“They can have a philanthropic ROI and an economic ROI that some households will find attractive,” he said.

Motivations

In terms of what drove their desire to give last year, wealthy households cited the following as their top motivators: believing that their gift can make a difference (74 per cent); personal satisfaction (73 per cent); supporting the same causes annually (66 per cent); giving back to the community (63 per cent); and serving on a non-profit's board or volunteering for a non-profit (62 per-cent). Only a third (34 per cent) of donors cited tax advantages among their chief motivators for giving.

“Wealthy donors have strong feelings about how the non-profits they support should use their contributions and conduct themselves,” US Trust said.

Reinforcing this, 81 per cent expect the non-profits they support to spend an appropriate amount of their donation on general administration and fundraising, and to demonstrate sound business and operational practices. They also expect non-profits to honor their request for privacy and anonymity (78 per cent) and, similarly, to not distribute their name to others (74 per cent).

The main reasons why donors reported having ceased giving to a particular charity they previously supported included that they received too frequent solicitation, or: because the non-profit asked for an inappropriate amount (42 per cent); the donor personally changed philanthropic focus or decided to support other causes (35 per cent); the organization was not effective (18 per cent); and the non-profit they supported changed leadership or activities (16 per cent).

A “new modality”

The study highlighted that during the last decade the percentage of wealthy clients who gave online has risen substantially by over half from 15 to 50 per cent.

“We are seeing more high net worth households giving online and I suspect that trend is going to continue,” Rooney said. “It’s important for charities to have a great website and provide opportunities to donate online and make it as bullet proof and as easy as possible.”

He added: “Ten years ago probably most of the people giving online were Millennials and Gen X, but now it’s more ubiquitous.”

Costello noted that indeed the 15 to 50 per cent increase is impressive, but added that this is over a ten-year time frame so it’s perhaps not quite the surge one might initially think.

“It’s a confluence of things: the increased role of the internet generally, as well as the fact that the philanthropic marketplace is increasingly using it as a tool,” she said.

Also of note is the fact that, by simple nature of the matter at hand, many individuals will prefer to maintain the human element of giving - particularly in cases where larger sums of money are involved.

Advisor engagement

Costello highlighted that reliance on advisors is intensifying as individuals realize that “giving away money is easy, but giving it away well is difficult.”

“Advisors could benefit from understanding that – for their clients – giving money away is, for most, one of the highest freedoms of wealth and one of the more meaningful aspects of the wealth experience,” she said.

Likewise, Rooney said one of the values wealth advisors can bring to the equation is an understanding of the philanthropic marketplace, advice on how to access information, and helping clients make informed decisions on an array of related factors.

Indeed, philanthropy has always held its place in the wealth planning process, but – as the study reinforced – the need for sound advice and strategic planning is arguably greater today than it ever has been. It’s also an effective way for families to engage with the next gen and teach them to be good stewards of wealth, for example.

“Additionally, it is important for advisors and non-profits to understand that, when you engage donors on a meaningful level, good things flow,” Costello said.

Transmitting philanthropic values

Following on from the above, the study found that a family’s efforts and those of their friends and peers continue to be the leading sources by which the next generation learn about giving (as cited by 55 per cent).

Meanwhile, when it comes to decision-making, 61 per cent of respondents who are married or are living with a partner reported that they make joint decisions about their giving.

It is unsurprising that many wealthy families have giving traditions (41 per cent) such as volunteering as a family and giving to charity during the holidays. Among those who volunteer (75 per cent), respondents were far more likely to do so with family (68 per cent) or friends (68 per cent) than they were to do so through a workplace campaign (25 per cent) or another organized group (49 per cent).

“This year’s study, more than ever, tells us that when wealthy donors are intentional about and engaged in their giving – when they find that meaningful intersection between their ideas and ideals – they give more, are more impactful and more personally fulfilled,” Costello said.

Methodology

Conducted between April and September 2014, the study involved mail and web surveys distributed to 20,000 households in high net worth areas of the US.

Results are based on a sample of 632 US households with a net worth of $1 million or more (excluding the value of their home) and/or an annual household income of $200,000 or more.