Posted July 7th, 2017

What Happened to the “Wealth Effect”?

A decade ago, fundraisers could count on economic prosperity and the accompanying “Wealth Effect” to have a positive impact on charitable giving. This phenomenon led to record giving levels in 2006 and 2007, as both real estate and stock markets reached record highs.

U.S. household net worth hit $66.5 trillion in 2007 but fell 15 percent to $56.2 trillion in 2008 as the Great Recession took hold. Since then, household net worth has steadily recovered, reaching nearly $95 trillion in the first quarter of 2017. The first quarter also saw stocks and mutual funds increase by $1.3 trillion and home values rise nearly $500 billion. Since the lows of March 2009, the Dow Jones Industrial Average has climbed from 6,547 to 21,215 in June of 2017.

Uneven recovery

Unfortunately, economic recovery has been uneven and wealth in America remains highly concentrated. According to the Pew Research Center, the middle class continues to feel economically stressed. Meanwhile, America’s wealthiest households have never accumulated more wealth, though even they report feeling unsure of the future.

According to press reports, 10 percent of the U.S. population owns 80 percent of stock market wealth, with the heaviest concentration in the top 1 percent. The net worth of the broader middle class is more closely tied to the value of their homes, which have only recently recovered from the aftermath of the housing bubble. Consumer spending is still substantially below the level seen before the Great Recession. With sluggish overall growth in consumer spending, it appears that most Americans may not be experiencing the “Wealth Effect” to the same degree as before the recession.

Your best strategy

Until the middle class starts feeling more confident, your best fundraising approach should be to identify your wealthier, higher income donors and then initiate a targeted approach to appeal to donors who have the greatest capacity to give, particularly those who are middle aged or older.

If you would like to learn more about how to enhance your donor data files with age and wealth information, visit www.SHARPEnet.com/data-enhancement-services. ■

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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