How the Wealthy Give
New Research Finds Wealthy Donors Remain Strongly Committed to Nonprofit Organizations; Reveals Unique Insights Into Donors’ Motivations for Giving and Why They Stop
Charitable giving by high net worth households to nonprofit organizations accounts for about two-thirds of all individual giving and about half of all charitable giving in the U.S.
Through an ongoing research partnership with the Center on Philanthropy at Indiana University, the 2010 Bank of America Merrill Lynch Study of High Net Worth Philanthropy reveals significant shifts as well as consistent trends in the attitudes and giving behaviors of wealthy donors, including which nonprofit sectors they support, how they direct their largest gifts, what motivates them to give and to discontinue support for a nonprofit organization, where and how often they volunteer, and who they turn to for advice about philanthropy. The latest study also examines new areas of research, including how charitable decisions are made within households, investment risk tolerance as it pertains to donors’ philanthropic assets, and how wealthy individuals respond to disaster relief.
This latest study follows much of the same methodology as past studies in order to identify key trends and provide deeper insights. It reflects the responses of more than 800 households randomly surveyed in affluent neighborhoods across the U.S. Households in the sample have an income of greater than $200,000 and/or a net worth of at least $1,000,000, excluding the value of their primary residence. The average wealth of respondents was more than $10 million, and half of all respondents had a net worth between $3 million and $20 million.
According to the study, high net worth households continued to support charitable organizations at levels that were remarkably consistent with those seen in 2005 and 2007, with 98 percent of wealthy households donating to charitable causes in 2009. High net worth households also reported a continued strong commitment to supporting the same organizations or causes year after year (66 percent). Although 35 percent stopped giving to at least one organization in 2009, this was consistent with 2007 results – an indication that donors were no less committed to the organizations they supported during the recent recession than they were before it began. Giving as a percentage of income also remained somewhat steady in 2009 compared to the previous study, with wealthy donors contributing just over 9 percent of their income to charitable causes last year, compared to approximately 11 percent in 2007.
While commitment to continuing support for nonprofits remained high, wealthy households appear to be making trade-offs in the dollar amounts that they give to charity, with the overall average gift amounts in this study decreasing by 35 percent from 2007, after adjusting for inflation. Several sectors did see increases between 4 and 21 percent in average amounts given by wealthy donors, including the arts, environment/animal care and international giving.
Although average giving amounts to health and education declined in 2009, they remain among the top nonprofit sectors supported by wealthy households. Consistent with the two previous studies, between 70 and 85 percent of high net worth households supported health, religion, the arts, education and basic needs. The percentage of households that gave to basic human needs, such as food and shelter, increased from 75 percent in 2005 to 85 percent in 2009.
More than 55 percent of high net worth households gave their largest gift in 2009 to fund general operations at nonprofit organizations. Significantly fewer households made their largest gift to support the growth of an organization (24 percent), for capital campaigns (14 percent) and for the long-term needs of the organization (11 percent) compared to 2007.
Motivations of Wealthy Donors:Why They Give and Why They Stop
When asked about their charitable behavior, high net worth households reported that their top motivations for giving were:
- Being moved by how their gift can make a difference (72 percent).
- Feeling financially secure (71 percent).
- Giving to an organization that will use their donation efficiently (71 percent).
- Supporting the same causes or organizations annually (66 percent).
Why Wealthy Donors Stopped Giving
In 2009, 35 percent of households stopped giving to at least one organization, and 27 percent stopped giving to at least two organizations that they previously supported. The top four reasons cited for why donors stopped giving to a particular charity included:
- Too frequent solicitation/organization asked for inappropriate amount (59 percent).
- Decided to support other causes (34 percent).
- Household circumstances changed (e.g., financial, relocation, employment) (29 percent).
- Organization changed leadership or activities (29 percent).
Additional Giving Influences include Tax Considerations
In a shift from the previous studies, wealthy households reported being more sensitive to the effect of tax policy on their giving. About two-thirds (67 percent) of wealthy households would somewhat or dramatically decrease their charitable contributions if they received zero income tax deductions for their donations; 47 percent responded this way in 2007. If the estate tax were repealed, 43 percent of wealthy households would somewhat or dramatically increase the amount they leave to charity in an estate plan, compared to 36 percent in 2007.
Attracting and Retaining Donors
A combined 95 percent of wealthy households have some or a great deal of confidence in nonprofit organizations’ ability to solve societal or global problems. In a continuing trend from the previous study, donors also have high expectations of charitable organizations, listing the following factors among those most important when determining which to support:
- Demonstrate sound business and operational practices (87 percent).
- Acknowledge contributions, including sending receipts (85 percent).
- Spend an appropriate amount on overhead (80 percent).
- Do not distribute personal information (80 percent).
Household Decision-Making and Transmission of Philanthropic Values
For the first time, this study examined how charitable decisions within high net worth households are made. The findings suggest that among wealthy couples who make charitable donations (those who are married and/or living with a partner), both giving partners are likely to be involved in decision-making:
- 41 percent confer with their partner or spouse and then make joint decisions about charitable giving.
- 26 percent confer but then usually one person ultimately makes the charitable giving decisions for the household.
- 16 percent reported that giving decisions were made by a single decision maker without conferring with anyone else.
- 15 percent of couples report that each partner typically makes independent decisions about how to allocate their giving.
Raising Philanthropic Children
The latest study once again looked at the transmission of philanthropic values to children or other younger relatives. In this study, the children of wealthy households are generally adults with an average age of 31. The vast majority (85 percent) of households instruct their children and/or younger relatives about philanthropy. Respondents also noted that younger individuals learn about the value of giving from religious institutions (45 percent), nonprofits (21 percent) and through their own personal efforts (19 percent).
Wealthy households reported a variety of family traditions as a part of their annual charitable giving. In fact, more than 70 percent of wealthy families have family traditions in which they involve their children and/or younger relatives in charitable giving, such as making gifts to honor the memory of an individual (35 percent), making gifts to organizations they are involved with (34 percent), having family discussions about giving throughout the year (27 percent), volunteering as a family (18 percent) and making family decisions about charitable giving during the holidays (10 percent).
Risk Tolerance and Advisors
In a new area of research, the latest study examined high net worth households’ levels of risk tolerance among both their personal and philanthropic investments (e.g., private foundations, donor-advised funds and charitable trusts). The results show that, while 35 percent of wealthy households cited a willingness to tolerate above-average or substantial risk in their personal investments, only 23 percent reported these high levels of risk tolerance when it comes to their philanthropic investments. Furthermore, while only 10 percent of households reported they were not willing to take any risk in their personal investing, one quarter (26 percent) cite being completely risk averse with their philanthropic investments.
Finally, this year’s study continued to examine trends in charitable advice sought by wealthy donors. Consistent with trends observed between the 2006 and 2008 studies, the 2010 study witnessed notable increases in donors’ use of accountants (68 percent) and financial/wealth advisors (39 percent) to help them make charitable giving decisions. High net worth households also consulted with nonprofit personnel (24 percent) in their charitable decisions around philanthropic mission definition and creation. More than 90 percent of wealthy households initiated the discussions with their advisor, and 85 percent were satisfied with the advice given.
The complete 75-page 2010 study is available here.