You may have seen this recent video on wealth inequality. It graphically shows how 40% of the nation’s financial assets are now owned by only 1% of the population. By contrast, the 80% of Americans with the least wealth control only 7% of the assets. Or, to put it another way, the wealthiest 3 million people in this country own nearly six times more wealth than the poorest 240 million.
There are many reasons to find this trend disturbing. This is a huge issue for our nation, economically, politically, philosophically, and morally. But here’s today’s question: How does the growing wealth disparity in the United States affect nonprofits?
Viewed broadly, this development may augur a time when there are more people needing services, and fewer who can contribute financially. And when viewed purely through the lens of fundraising, these statistics suggest that nonprofits need to focus on an ever-narrower portion of the population.
Allow me a quick aside here about the importance of assets, as opposed to income, in charitable giving. Think of a person who earns $100,000 annually and donates $2,000 over the course of the year to various nonprofits. (That kind of charitable giving level, by the way, is close to the national average of 1.8% of income.) These gifts would typically come out of the donor’s income.
But end-of-life planned gifts, and many lifetime major gifts, come out of a person’s financial assets: bank accounts, stocks, bonds, insurance policies, real estate, artwork, or shares in the family business. Assets are what make a person wealthy. And having those assets is a precondition to making a major lifetime or planned gift to charity.
When I started working in nonprofits thirty years ago, people often made reference to the 80-20 rule – that is, that 80% of the money comes from 20% of the donors. Over the years, I noticed that it began to be referred to as the 90-10 rule. Some would consider it an overstatement to say that we are in an inevitable slide toward the 99-1 rule, where 99% of the money will come from one percent of the donors, but logic tells us that this is the trend. However you feel about these developments, if you are responsible for raising funds for a nonprofit, you need to understand that the deepest pools of financial assets are found in an increasingly slim sliver of the population.
This reality meanwhile places a significant responsibility upon the very wealthy. They should give generously to charity and think carefully about how best to distribute these funds. Loyal readers of this blog will know that I consider charitable contributions invested long-term in private foundations and donor-advised funds to be philanthropic underachievers. So too, in most cases, are donations for endowments. Donors should invest in people, I contend, rather than in the markets. Some modern exemplars of this principle include Warren Buffett and Chuck Feeney, who are putting their enormous charitable dollars to work today, rather than locking them up for a far-off tomorrow.
Meanwhile, for the nonprofits that are searching for their versions of Buffett and Feeney, do remember a bit of pragmatic advice that a mentor of mine told me when I was still early in my career: “To be successful in development, you need donors who have both the capacity to make large gifts and an interest in your organization. You can do something about building their interest. You can’t do anything about increasing their capacity. So be sure to go out and find people with capacity.”
That made sense twenty-five years ago. And it’s that much truer today.
Copyright Alan Cantor 2013. All rights reserved.