Over the last two decades, donor-advised funds have skyrocketed in popularity, offering donors a more convenient vehicle for charitable giving than more traditional offerings. But a new study released this week by the Lilly Family School of Philanthropy at Indiana University and the CCS Fundraising consulting firm finds that DAFs are also playing an outsized role in sustaining nonprofits, particularly small ones.

According to the report, “Do Donor-Advised Funds Respond to Nonprofit Financial Distress? Insights from the 2022 Economic Slowdown,” which examined data from 2018 to 2023, DAFs supported nonprofits at a larger scale than overall charitable giving, especially during the COVID-19 pandemic and the 2022 economic slowdown.

DAFs have the potential for “countercyclical giving,” which occurs during periods when the economy slows and nonprofits need more funds but donors have less to give, Jon Bergdoll, interim director of data and research partnerships at the Lilly School, told eJewishPhilanthropy. This is because, with DAFs, donors have money already allocated and set aside that they can dip into when others may be reluctant.

As donors with DAFs can be a savior in times of overall economic crisis, Bergdoll recommends that organization leaders reach out to them, not with mass email blasts but personal calls or messages, and be transparent about their finances. “Especially if a nonprofit has a more personal or one-on-one relationship with a donor and they know them pretty well, I think being more transparent or fairly transparent about [financial hardship] for certain donors might be a motivating factor [for them] of just knowing, ‘Hey, it’s not a matter of we are trying to reestablish this program, or we’re trying to expand our offerings, it’s just purely our revenues were really hit hard by that [crisis] or we had this challenging time,” Bergdoll said. “And we would feel a lot more secure in our operations a year from now if you were to donate right now.”

The study was prompted by past research that showed increased giving from DAFs during the Great Recession from December 2007 to June 2009. The new research echoed that trend, finding that during the 2020 pandemic, DAF giving was 20% higher than overall charitable giving. In 2022, during the economic slowdown, inflation was high, consumer confidence was low, markets were in decline and giving went down, causing many nonprofits to struggle. Despite this, DAF giving increased during this period — modestly overall but more significantly for organizations with less than $5 million in assets, which had a DAF boost of 31% compared to overall giving.

“Our hypothesis on this is that asset size, as compared to other measurements of financial vulnerability, is really easy to look up,” Bergdoll said. “It’s right there on the [IRS form] 990 [for] a lot of times. DAF apps like your Fidelity [Charitable app] present this basic information that includes asset size. It’s something that a donor has almost instant access to see versus a more complicated calculation that involves grabbing different numbers from it.”

While it’s “never a good idea to rely on anything,” he said, DAFs are a strong resource for nonprofits. “Donors who have a pool of assets in a DAF, those are the sorts of donors that are especially good targets during more challenging financial times, simply because that disincentive to give [because they might not have the funds set aside] isn’t there. In times like the present, where markets are fairly strong, I don’t know if there would really be a strong, significant difference in that sort of donor type, just because whether or not you are giving out of your DAF or you’re giving out of your checkbook, you’re at that wealth level, presumably, you’re probably doing pretty OK right now.”

The research shows that donors are more likely to help organizations when they “understand the story,” Kate Villa, managing director of CCS Fundraising, told eJP. The study “shows donors are looking for ways to make a difference and responding to simple, powerful cues. Generosity doesn’t need a headline, just awareness.”