Navigating philanthropy in 2021
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By Lawson Bader
One of 2020's great disruptions occurred among the nonprofit sectors. Charitable organizations spent the early part of the year handwringing over how they would make budget while simultaneously being well positioned to help others equally disrupted. Most engaged or pivoted to fulfill their respective charitable missions, hoping the donor community would rally behind them. And rally they did.
Not all the data is in yet, but early reports (most recently the Fundraising Effectiveness Project's survey) suggest that giving increased 10.6 percent in 2020 over 2019. More importantly, early indications from donor-advised fund (DAF) providers, notably Fidelity Charitable and a recent joint report between The Philanthropy Roundtable and American Enterprise Institute, suggest new donors were added to philanthropic roles. And the frequency of gifts, aka payout rates, also increased. Fidelity donors recommended nearly 2 million grants to 170,000 different charities. Both record highs.
The good news is we have gone into 2021 with a modicum of optimism and hope about improving personal and societal health and greater commercial and educational activity as the year progresses. The bad news is the uncertainty as to whether the momentum can continue.
According to a recent survey by Eagle Hill Consulting, 35% of Americans say they expect to donate less money to charitable causes in the coming year, or none at all. The survey found this is likely due to the tough economic climate. It also may be fair to say that donors suffer from the same "weariness" that affects so many others who suffer the consequences of Covid-19 disruptions.
Giving Tuesday, end-of-year holidays, and the closing of the tax year constitutes the annual busy season for DAFs, foundations, and other philanthropic organizations. Consequently, it is common for charities and nonprofit organizations to see a lull in giving come January and February. However, a lull in 2021, at any time, presents major concerns for charities, fundraisers, and nonprofits since nothing has changed in terms of the pandemic and people are still in need.
Another important factor to consider is the number of people who opened a DAF in late 2020 to take advantage of the CARES Act or other tax benefits but are now unsure as to how to move forward. They responded favorably to their financial advisors' suggestion to open a DAF but now could use guidance on best utilizing the fund. Like all philanthropists—whether new or established, wealthy or modest—they care about impact. This means that donors are looking for guidance from the nonprofit community.
Here are three ways DAF account holders can help offset philanthropy fatigue while making the most of this charitable vehicle.
ONE: TAKE A TIME OUT
First of all, take a breath. There is a great cacophony of noise that is distracting, interfering, overwhelming, and, in some cases, just plain depressing. There is a fine line between addressing the immediate while recognizing the need for long-term institutional change. If you already have a DAF, great; if not, opening one can give you that needed pause to take your time, study potential groups, observe the response to a Covid-19 world, and support those that are working on issues you care about.
TWO: LET THE FUND GROW, BUT DON'T GO TOO LONG
DAFs are helpful tools because they allow you to donate without choosing specific charities right away—and in that interim, the funds can be invested and grow tax-free. Compounding interest ultimately benefits a qualified charity, so use your "pause" to allow the market to add muscle to your eventual gift. However, while it is important to put money into an account, it is more important for money to come out. The fact that payout rates among DAF providers (compared with private foundations) continue to rise each year is a testament to the short-term use of DAF giving. This is something all DAF holders should keep in mind as 2021 continues.
THREE: BE REALISTIC, NOT PESSIMISTIC
If there was any time to be a realist, it is now. Let's be honest, there is no such thing as "returning to normal," even if there will be a return to more "familiar" patterns. There will be permanent changes in a post-pandemic world, especially in education, health and wellness, technological innovation, urban landscapes, and even community theater and the arts. Philanthropic dollars provide needed balm, yes, but also an opportunity to expand and build upon positive changes. Nonprofit institutions are not immune to these forces, either. New ones will emerge as old models wither. As a donor, you need to let this process unfold. As a DAF user, you have the benefit of time.
Above all else, from major donors to the "everyday philanthropist," we all are members of one the most important sectors of our society: the givers. Anyone can give. All can embrace those deserving of support, do so proudly, and feel confident that they made a positive difference. It is critical, however, to be informed in order to ensure the maximum benefits from the gift (for both the recipient and the philanthropist) is realized.