New study sheds light on philanthropy habits of wealthy
Published 4:10 pm, Wednesday, January 30, 2013
Philanthropy is alive and well in Fairfield County, according to local experts and a recent study by Bank of America on the giving patterns of wealthy households.
The 2012 Bank of America Study of High Net Worth Philanthropy said that although charitable giving from wealthy households decreased from 2007 to 2009, numbers were strong between 2009 and 2011.
"Among wealthy households, average giving as a percentage of household income held steady at approximately 9 percent between 2009 and 2011, despite a challenging economic environment," the study found.
The study defined "high net worth households" as those with more than $1 million in assets excluding their home, and/or household income of $200,000 or more.
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a weak economy
The cool economy and falling housing prices of the previous few years were apparently not a deterrent for wealthy households, nor are fears of another fiscal cliff or debt ceiling crisis or a possible double-dip recession holding back their plans for future giving.
"Our respondents are optimistic about the future and will continue to support charities to the same extent or more during the next three to five years," said U.S. Trust Managing Director and Market Executive on Fairfield County Marion Schmeelk.
According to the study, 76 percent of high net worth donors plan to maintain or increase their charitable giving in the next three to five years, while 9 percent plan to give less.
The finding that donations remained steady throughout the lean years is corroborated anecdotally as well. Ceci Maher, executive director of Person-to-Person, a Darien-based nonprofit organization, said that through weak economic years, donations remained steady.
"We made a commitment to continuing our program levels because we knew we were going to be tapped heavier than some other types of nonprofits," she said of the organization that helps Fairfield County residents in emergencies by helping pay for rent, food and basic necessities. "We kept funding for programs at the same level and grew it in the emergency assistance area. What we found was we continued to retain support. It was really gratifying to see that people understood."
One type of donation Person-to-Person depends on is volunteer labor. According to the Bank of America study, wealthy individuals are volunteering at a high and increasing level.
"In 2011, 89 percent of high net worth individuals volunteered their time and talent to nonprofit organizations -- up 10 percentage points from 2009," according to the study. "More than half (54 percent) volunteered more than 100 hours, and 35 percent volunteered more than 200 hours in 2011."
The study reported that the most common type of volunteerism is participation on boards of directors and event and fundraising planning. The study also noted that wealthy donors are more likely to give their money to organizations they volunteer for.
"Generally, high net worth individuals who volunteer tend to also give financial gifts, and those who volunteer more tend to give more. Last year, those who volunteered more than 100 hours gave more than $78,000 on average, roughly twice the average gift among those who volunteered fewer than 100 hours, which was approximately $39,000," the study stated.
"We draw about 2,500 volunteers annually," Maher said. "These volunteers are often also our major donors. Because our volunteers are actually hands-on in the agency, they're able to see that the financial assistance they provide goes to things that are important and the organization is well managed. I think that may be a reason why our funds didn't drop off."
The study found that donors are not willy nilly in their giving. According to the study, 71 percent had a plan with a specific strategy in place, and 61 percent had a budget set aside for philanthropic activities.
Bert T. Bowler, a financial planner for Ameriprise Financial on Elm Street in New Canaan, said philanthropic plans vary for each client, but that the baseline remains the same.
"First, we make a determination of what a client wants to give to charity that would not have an adverse effect on their standard of living for the rest of their lives," he said in an interview. He added that especially the end of a person's life, when their taxable wealth can be offset by charitable giving, they would rather see their money spent by a charity than by the government. "They're trying to control where money goes as opposed to it going to the state. They think the private institution can be more effective than the government, and they're right, in my opinion."
Though it has seen several changes over the past several years, the max federal estate tax now stands at 40 percent after an exemption of $5.25 million. Additionally, Connecticut, which was named in a Forbes article titled "Where Not to Die in 2012," has a rate of 12 percent and a $2 million deduction.
Donors also want to give to an organization that is managed well and whose administration costs do not eat up their donations, according to the Bank of America study. Websites such as Charity Navigator (charitynavigator.org) track numerous aspects of the financials of nonprofit organizations and give out rankings on a four-star scale. Administrative costs as a percent of revenue is featured prominently on the Person-to-Person -- which has a four-star ranking -- website.
Giving to funds
But data can sometimes be deceiving. Small organizations that don't receive big corporate or state backing and that rely on individual donations may have to spend a lot of time and money doing fundraising, which would show up in administrative costs, said Cynthia Gorey, executive director of the New Canaan Community Foundation.
"I think that although that's an important thing for a donor to understand, it's not the whole story," she said in an interview. "Some organizations have skewed information when it comes to that category. Some organizations get donations like in-kind contributions that then count as revenue, which skews their top line and makes them look artificially efficient. It can't be the only way you look at an organization."
Gorey said the advantage of a local fund like the NCCF is it can do the homework that donors don't have the time or knowledge to do.
"We have an evaluation tool that we developed," she said. "We look at things like trends in revenue and expenses and how much they spend on programs. But as a local funder, we know that's one part of their story. We also look at the skill of the staff and the value they provide. We know local organizations very well; we know what they're providing."
More wealthy donors are turning to funds like the NCCF in making their donations, according to the Bank of America study, which said that 19 percent of donors are giving to vehicles like foundations, up from 16 percent in 2009.
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