Over the last few years Americans have experienced and adapted to extraordinary changes: fluctuating financial markets, the impact of September 11, the wars in Afghanistan and Iraq, corporate leadership scandals, and significant changes in the political landscape. These events and others have presented challenges to all sectors of the economy, including the nonprofit service community.
Despite these changes, charitable giving has reportedly held steady or even increased slightly in recent years—while demand for services from the nonprofit sector continues to grow.
Increased demand for services coupled with a challenging environment for fund development mean that now is not the time for business as usual. It is time to work harder—and smarter—in all aspects of fund raising. There are some things we can control and others that we cannot. The key is to know the difference and to act quickly and decisively to make the greatest positive impact whenever possible.
As we approach the second half of 2005, here are some issues to consider when planning for the remainder of this year and beyond:
- Stock market valuations remain flat while interest rates are rising.
- The aging of America is becoming more of a factor in national life as the future of Social Security is debated.
- Congress continues to debate the wisdom of repealing the estate tax and other tax law changes that could impact charitable giving.
What to do
Major market indices have failed to advance since early 2000, and the Dow Jones Industrial Average has ranged in the five years since then over 4,000 points, from 7,500 to 11,500. Large sums have been made and lost by individual and institutional investors as the markets have fluctuated in value. It is important to consider the fact that those who timed the markets well and those who have invested for the long term continue to enjoy significant increases in the total value of their investments. Others may be benefiting from real estate values that are at historic highs in many parts of the country.
What this all adds up to is that many Americans still possess significant wealth, and your most committed donors may be among that group. Government studies reveal that the wealthiest per capita households in America are headed by persons age 65 and older—a key group from a fund development perspective. Many have already retired, so they do not need to worry about job security. Such persons have also been told by national leaders that their Social Security benefits are exempt from proposed changes. Older individuals often shy away from 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.
Many seniors were driven to debt instruments in recent years by lower dividend yields on equity investments. Those who shifted assets to bonds in the late nineties to provide more spendable income may have seen the value of those bonds increase significantly as interest rates declined over the past five years.
How to capture what’s here and now
Here are some steps we can all take today to help assure the best possible results for the remainder of this year and beyond:
- Strive to devote as much time to thanking donors for gifts as you do asking for gifts. If you want to find the people who still have the ability 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. You may also find that the positive feedback enjoyed in the process of thanking donors will energize you for more difficult tasks.
- Take care to serve those who have cared the most for the longest time, and do everything you can to build stronger relationships with them. During challenging periods, your long-term donors will be those most likely to stay the course.
- Help donors understand how best to make their gifts today. Many donors now have large cash reserves after selling investments that were not performing well. Their natural inclination this fall may be to make gifts using a portion of that cash. But these donors probably still own investments they feel are likely to continue to grow in value. Instead of cash, those are the assets they should give, to take maximum advantage of existing appreciation. They should use their cash to purchase new investments, thereby diversifying their portfolio while they enjoy a new, higher cost basis. Most donors do not know how to properly balance the sale of some assets with the gift of others. Don’t expect others to tell them—you must educate them yourself. This can be a key to obtaining new campaign commitments and fulfilling others in this environment.
- Focus on older donors. As noted above, donors in the 70+ age group are one of the wealthiest generational cohorts in history. Remember that for every person who bought into the equity markets during the bubble years of the late nineties, someone else was selling. Many of the buyers were younger persons seeking to make a quick fortune and retire early. The sellers were often more disciplined, mature persons, many of whom were already retired. These persons are likely to still have the sale proceeds from stocks they accumulated over a lifetime.
- Be prepared to serve the needs of women, especially widows. Keep in mind that women often outlive their husbands by several years and will likely be the ones who decide the ultimate distribution of the wealth a couple has accumulated over their lifetimes. (See page 7 for more on this topic).
- Listen to your donors’ expressed needs. Learn to interpret signals they are giving you. They may express a desire to give more, but feel hampered by lower investment returns. Or they could be concerned about providing an inheritance for their children. What they may really be telling you is that they could make a significant gift if it resulted in increased income or a tax-free inheritance for loved ones. Trusts, gift annuities, and other gift planning vehicles now more than ever may hold the key to securing major current and deferred gifts.
- Be flexible on the timing of gifts. Some donors have a tremendous desire to give, but their resources may be temporarily limited due to lower interest rates, a spouse’s job loss, or other factors beyond their control. Remember that making a provision in their estate plans, regardless of their age, can be possible even if they cannot make a large gift today. Now is the time to let people know that you appreciate these types of gifts and will recognize them appropriately. What greater indication of donative intent could there be than the decision to elevate a charitable interest to the status of a close friend or family member by including it in a will or other estate plan?
- Don’t wait for further change. While the CARE Act and other legislation may provide additional tax incentives, remember that tax benefits are the “icing” and not the “cake.” They are the same regardless which charitable interest a donor wishes to support. As tax laws change, nonprofits will adapt accordingly as they have in the past. The best course of action is to focus on your case for support and direct donors to the best ways to make their gifts under current law.
The “wealth effect” of the 1990s may be over, but remember that significant wealth—and donor commitment—remain. We believe that charitable giving will continue—and even grow—in the current environment. Much of the wealth in America is in the hands of those who did not participate in what Alan Greenspan termed the “irrational exuberance” of the nineties. These “millionaires next door” 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 an exciting and rewarding vocation to serve them as they decide how to invest their wealth in causes in which they believe.