The Impact of the Economy on Charitable Giving
By: Gerri L. Elder
Over the past ten years, charitable giving reached record levels in the United States. However, with the current economic crisis in full swing and cutbacks as far as the eye can see, many wonder if charities will also feel the squeeze and be forced to scale back and eliminate programs.
The New York Times reports that so far, there is little bad news coming from fundraising experts and nonprofit leaders. Although charitable organizations are preparing for leaner times that they say are definitely coming, none are reporting large shortfalls yet.
Robert F. Sharpe Jr., president of the Sharpe Group, a fundraising firm in Memphis, told the Times that historical data indicates that economic changes do not have a severe impact on giving. According to Sharpe, even during some of the worst economic times in the U.S., philanthropy remained strong.
Patrick M. Rooney, interim executive director of the Center on Philanthropy at Indiana University, agrees with Sharpe. Rooney told the Times that the most reliable indicator of individual giving is Standard & Poor's 500 stock index.
A 100-point rise on this index translates into an additional $1.5 billion in charitable donations from people who report them on tax forms. A decline on this index generally indicates a comparable decrease in philanthropy.
Using that sliding scale as a guide and looking at the price of the index as of Nov. 6, charitable donations will be expected to drop by approximately $8.7 billion from an estimated $187 billion this year, according to Rooney. That drop in giving is far less than the overall drop in financial markets.
However, Rooney also tells the Times that the timing of the market collapse could cause a greater impact on charitable donations. He explains that a market drop early in the year (as opposed to closer to the end of the year) can affect giving, as many people tend to think about giving to charity closer to the end of the year.
Other experts say that the effects of the economic crisis are already being seen. Recent surveys by the Center on Philanthropy, conducted in Indianapolis and Memphis, show that households with an annual income of less than $50,000 are less likely to make charitable donations during hard times.
Individual donors collectively account for 88 percent of philanthropy in the U.S., but where these donations may fall short, larger donors are counted on make up the difference. However, in the current economic climate, that may not be possible because many of the deep pockets have seen their wealth decline sharply this year.
In some cases, the effect of less charitable contributions may not be felt for several years, but some charities that depend on individual and corporate donations say they are already feeling the crunch.
Roxanne Spillett, chief executive of Boys and Girls Clubs of America, told the Times that the clubs are dealing with increased insurance premiums and higher energy costs. As a result, the organization is increasing the number of requests it makes to donors, increasing its stewardship calls to top givers and scheduling more face-to-face meetings with contributors.
The organization depends on corporate donations, but Spillett reported that she has noticed some reluctance among donors to make multiyear commitments to the organization. Other donors are already reducing the amount of their gifts.
Many groups and organizations that rely on donations may be tighteninfg their belts because of the poor economy. By cutting costs and stepping up fundraising, they hope to weather this economic crisis along with their charitable donors.
In the meantime, all eyes look forward to a stronger economy, more prosperous times and an increased capacity for charitable giving in the future.
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