Person looks at sharp curve in road, an apt picture of the questions about where charitable giving is going in the months ahead.

Where is Charitable Giving Going in the COVID-19 World?

Where is Charitable Giving Going in the COVID-19 World?

by Bill High

It’s a question I get asked a lot: “Where is charitable giving going?” Donors and nonprofits alike ask it.

Before addressing that question of where giving is headed through the rest of this year, I want to take a quick moment to look back at the charitable giving trends predicted for 2020 & 2021 as recently as a few months ago. It’s striking how quickly the outlook has changed.

 

Pre-Pandemic Giving Predictions

I’ve been looking through the Marts & Lundy-sponsored The Philanthropy Outlook for 2020 & 2021, published in February 2020This report is by researchers at the well-respected Indiana University Lilly Family School of Philanthropy at IUPUI.

Of course, the researchers wrote and published their report before the full impact of COVID-19. At the time, they predicted that giving would go up by 4.8% in 2020 and 5.1% in 2021.  Their assumptions were based upon:

  • above-average growth in the S&P 500
  • growth in personal income
  • growth in GDP

At present, we’ve now seen the ranks of the unemployed in the U.S. swell above 30 million people, and the stock market is down even despite recent rallies. The Congressional Budget Office is currently predicting that U.S. GDP will decline by 5.6% in 2020, although in 2021 it is expected to grow by 4.2%. (Those numbers will factor into the answer below on giving trends this year.)

Notably, within the report, the researchers cited various reasons charitable giving might be impacted: income inequality (with the wealthy in theory less predisposed to give), upcoming elections, and potential legislation, including new taxes. No mention of a global pandemic.

I’m not at all criticizing the Lilly Family School of Philanthropy researchers. No one saw a global pandemic coming. But it is interesting to see how frail our world can be. The best-researched predictions are still subject to events and circumstances that we cannot foresee.

 

Giving Reflects Economic Health

Back to the original question: where is charitable giving going this year?

On the one hand the question is a reflection of the measure of our country’s health. Strong charitable giving reflects a strong economy, markets and consumer confidence. In the wake of COVID-19, the country’s resulting shutdown and gradual reopening, strong questions remain about what charitable giving will look like in the coming months.

Before diving into that issue, I’ve got one more side note. In the past some have accused the donor advised fund world of “sitting on assets” that should be flowing through to charities. But the truth is that those set-aside charitable dollars have allowed donor advised fund-donors to dig deeper to meet current needs. For instance, Fidelity Charitable reported that donors have directed $236 million to COVID-19 relief efforts. Fidelity Charitable has granted more than $2.5 billion from January 1 to May 5, 2020.

But the coming months will provide an uneven response to the current crisis. Questions about recovery, job losses, business reopening, and the cautiousness of consumers still hang heavy.

A recent survey by Campbell-Rinker told us that 1/5 of donors won’t give to charity until the economy is back up and running, according to The Chronicle of Philanthropy‘s coverage, while 53% said they would give “more carefully” than before. Only 28% said they would maintain their giving.

 

Charitable Giving Drops with GDP

In mid-April, Jeremy Beer, writing for Philanthropy Daily in “How much will charitable giving decline? A new survey provides a starting point,” refers to a well-known measure of U.S. philanthropy, that “charitable giving is clearly and consistently connected to gross domestic product or GDP.”

Using that analysis, Beer notes that giving has hovered at 2% of GDP since the mid-twentieth century. Citing the Wall Street Journal, Beer points out that economists are predicting a 4.9% decrease in GDP in 2020. He argues that a drop of 5% in GDP would result in a 10% drop in charitable giving. (The math doesn’t quite add up on that: a 5% in GDP should equal a 5% drop in charitable giving, but perhaps Beer is also expecting giving as a percentage of GDP to drop below 2%, as it did during 2008-09.) 

The more recent Congressional Budget Office predictions of a 5.6% drop in 2020 GDP would cause a similar drop in charitable giving this year.

A 10% decline in charitable giving would be roughly a $40-billion decrease. (Total giving in 2018 was $427.71 billion, according to Giving USA’s annual report.) As Beer notes, that kind of decline, while painful, would not be the end of the nonprofit world.

The newly passed CARES Act has multiple provisions designed to spark charitable giving including the $300 universal charitable deduction and the option to deduct up to 100% of adjusted gross income (AGI) in giving. While many might take advantage of the $300 opportunity, I suspect few will fall into the 100% of AGI category.

I’ll be writing more on this in the coming weeks, so look for those posts. For now, let me know if you have your own views or the experts that you are turning to.

 

 

Photo by Jose Rago on Unsplash

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Published May 7, 2020

Topics: Giving Trends

Charitable GivingGiving TrendsNonprofit DevelopmentNonprofitsTaxes

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