Posted November 1st, 2014

Gains in U.S. Household Net Worth May Lead to “Wealth Effect” Giving

nest eggAccording to the latest figures from the U.S. Federal Reserve, Americans’ net worth soared in the second quarter of 2014.

Household wealth grew to $81.5 trillion in the second quarter of 2014, with securities values rising by $1 trillion and home values by $230 billion. These increased values have been cited as the primary drivers behind the gains in household wealth.

A rise in wealth naturally leads many to feel more financially secure and, as a result, they may demonstrate their confidence by spending or giving more. This phenomenon, sometimes referred to as the “wealth effect,” could have a positive impact on charitable giving in 2014.

Since the depths of the Great Recession, U.S. household net worth has rebounded dramatically, but much of that rebound has been concentrated in the 10 percent of families who own roughly 80 percent of stocks and mutual funds. The broader middle class has not necessarily enjoyed the same growth in wealth.

In addition to benefitting from gains in stock and real estate values, the top 20 percent has also experienced a greater increase in income than the remainder of the U.S. population. As a result, a growing number of high-income and high-wealth households find themselves subject to the new higher income and capital gains tax rates that became effective last year. Wisely planned current and deferred gifts can help reduce or eliminate tax increases they might otherwise experience for 2014.

Fundraisers should pay particular attention to the top 10 percent to 20 percent of U.S. households that have experienced the greatest gains in wealth, as these potential donors are the population group most likely to benefit from the wealth effect.

Noncash gifts of appreciated stock, mutual funds, real estate and other assets may provide the greatest tax benefits for these affluent donors. As many organizations receive a disproportionate percentage of their charitable gifts in the final weeks of the year, it is important to take maximum advantage of increased wealth and income levels in ways that can maximize giving during the remainder of 2014.

Donor base file enhancement.

Discovering your organization’s “wealth effect” donors is the first step to encouraging gifts from this important group. By adding demographic data to your donor files, your organization can identify these individuals and thereby maximize the effectiveness of your current and deferred gift planning efforts.

In concert with the largest data compilation company in the world, Sharpe Group offers the data enhancement packages described below at a special group rate for clients. Click here for more info.

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The publisher of Give & Take is not engaged in rendering legal or tax advisory service. For advice and assistance in specific cases, the services of your own counsel should be obtained. Articles in Give & Take may generally be reprinted for distribution to board members and staff of nonprofit institutions and other non-donor groups. Proper credit must be given. Call for details.

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