How the Other Half Gives: Philanthropy from High Net Worth Individuals

 

Wealthy Giving

Last month, philanthropic donor Mark Zuckerberg spent a mere $100 million to buy a 700-acre parcel on Kauai in the Hawaiian Islands. That hardly compares, however, to Larry Ellison’s purchase in 2012 of 87,000 of the 90,000 acres on Lanai, the sixth largest island in the Hawaiian chain, for something in the range of $300 to $500 million.

Conspicuous consumption in the form of buying tropical islands is probably off-putting to most of us in the less-than-billionaire category, At least in the cases of Facebook’s Zuckerberg and Oracle’s Ellison, they devote parts of their unfathomable wealth to charitable causes and philanthropic instruments: Based on a donation of 18 million shares of Class B Facebook stock, Zuckerberg’s 2013 giving total rang in at $970 million, and just last month he gave $25 million to the CDC Foundation, the private fundraising arm of the Centers for Disease Control and Prevention, in the fight against Ebola. According to the Chronicle of Philanthropy, Zuckerberg was the nation’s top giver in 2013 and Ellison the 26th, giving $72.5 million to his eponymous foundation.

Whatever the pros and cons of the giving of the super-wealthy, at least with Zuckerberg, Ellison, and others, their charitable giving offsets the conspicuous consumption that goes along with their billionaire lifestyles. Neither of these donors nor many other high net worth givers are into charity for the tax benefits.

“High net worth” doesn’t mean billionaire. In the most recent survey of high net worth givers, conducted by the U.S. Trust private banking division of Bank of America, high net worth is measured as households with $1 million in investable assets or annual income of $200,000. The survey, conducted in conjunction with the Lilly School of Philanthropy at Indiana University, examined the giving of 632 high net worth households and found that they gave an average of $68,580 to charitable causes last year, with households of more than $5 million in assets clocking in at $166,000 in average donations.

A key point that the study authors have emphasized in the survey findings is the importance of volunteering in explaining differences among high net worth givers. “This year’s study, more than ever, tells us that when wealthy donors are intentional about and engaged in their giving—when they find that meaningful intersection between their ideas and ideals—they give more, are more impactful and more personally fulfilled,” said Claire Costello, the U.S. Trust philanthropic section executive who led the study. Her conclusion is borne out, among various factors, by the 73 percent higher average giving by wealthy donors who volunteered compared to those who did not.

In a conversation with Nonprofit Quarterly after the survey report was issued, Costello acknowledged other findings from the survey that are of import to nonprofits and other donors, though the press coverage hadn’t highlighted these issues:

  • Despite the increase in average giving, rising from $58,650 in 2009 and $53,518 in 2011 to $68,580 in 2013 (it was $99,859 in 2005), both average giving and median giving as a percentage of income has been declining: Average giving as a percentage of income was 9.1 percent in 2009 and 8.7 percent in 2011, but fell to 7.8 percent in 2013; median giving fell from 3.4 and 3.2 percent to 3.1 percent in 2013. Average giving by income cohort also declined: For givers with incomes between $200,000 and $499,999, average charitable giving went from $33,351 in 2009 to $25,486 in 2011 down to $21,822 in 2013; for donors with incomes between $500,000 and $1,999,999, average giving declined from $108,950 in 2009 to $104,947 in 2011 to $88,818 in 2013. Average giving for donors above $2 million rose substantially in 2013, but the report notes that the information may not be statistically meaningful due to the small number of respondents in that category in some years.
  • With such large ranges of potential incomes, the average giving numbers may be less revealing than the median giving. It appears that the median donation by the surveyed households is much lower: $12,300 as the median, compared to $68,580 as the average. The same holds true for prior years: Median giving was $13,029 in 2009 and $17,035 in 2005. The declining median giving of individuals with high net worth as a percentage of income might be because their post-recession incomes are rising so rapidly, unlike the vast majority of Americans, whose real income has continued to decline during the “recovery.” Their giving simply hasn’t caught up. But the fact that absolute amounts of median giving have declined over the years suggests that high net worth donors might be exuding a little less charitable feeling than one might hope. Perhaps they feel a little queasy about the probity and reliability of the nonprofits they might give to, or they might simply be prone to spending a little more money on themselves and a little less on societal benefit.
  • Although secular giving dominates as a proportion of the survey respondents’ median giving, giving for religious causes has rebounded from $4,773 (28 percent of median giving) in 2005 prior to the Great Recession and $3,855 (29.6 percent) in 2009 in the middle of the recession to $5,000 (a sizable increase to 40.7 percent of median giving) in 2013. Of the total giving of these high net worth donors, education (higher education at 22.9 percent and K-12 education at 4.1 percent totaling 29 percent of all giving by the survey respondents) consumes the largest proportion of their donations. Religion is second at 12.2 percent, but when asked where these donors’ largest gifts went in 2013 in terms of the type of organization, education groups were the recipients of the largest gifts for 26.8 percent of the donors, but religious groups (houses of worship, actually) received the largest donations of 33.5 percent of the survey respondents. Note, however, that for 42.2 percent of the respondents, their largest single donations were less than $5,000.

Unlike foundations, high net worth givers tend to be general operating fund philanthropists. Nearly four out of five—78.2 percent—reported that their largest gifts were unrestricted. Only one-fifth reported restricting their largest gifts for specific purposes such as a program, an endowment, or a capital campaign.

The finding most striking to us was a comment from Costello that tax incentives are not a significant driver for high net worth individuals in whether to give, but more so in how to give and perhaps when to give. The giving of these donors may well exceed what they are able to deduct from their federal taxes. Her perception is that high net worth donors want more discussion of philanthropic giving with their financial advisors, with the discussion centered on their values—what they are trying to achieve with their giving—rather than the tax benefits they may be able to secure.

Costello pointed Nonprofit Quarterly to another report of U.S. Trust, a 2013 survey of high net worth donors and their financial advisors. The survey, conducted in conjunction with The Philanthropic Initiative (TPI), reported that donors and advisors have very different perceptions of who initiates the conversation about philanthropy and what that conversation entails:

  • Almost nine out of ten wealth advisors say they discuss philanthropic giving with some of their clients, but only 55 percent of high net worth individuals say that they actually have those conversations with their advisors.
  • According to the report, one-third of advisors report that they initiate the conversations about philanthropy, with their clients only initiating the philanthropic discussion 20 percent of the time. In contrast, of the high net worth individuals talking philanthropy with their advisors, half say that they initiate the conversation, and advisors only raise the topic on their own 17 percent of the time.
  • Nine out of ten philanthropy-talking advisors say they encourage their clients to give to charity. Forty-one percent do so regardless of their clients’ income level, but half prefer to wait until their clients have at least $500,000 in liquid assets and one-fourth set the bar at $3 million or more.
  • Almost half of the surveyed advisors report that they discuss their own charitable giving with their clients, with the notion that clients feel better about philanthropic giving when they are aware that their advisors do the same.

The “advisors” report seems to confirm Costello’s take on the impact of the charitable deduction:

“Evidence of a disconnect on the topic of taxes was found when advisors cited a belief that 40 percent of HNW individuals would reduce their giving if the estate tax were eliminated, and that 78 percent would do so if income tax deductions for donations were eliminated—whereas just six percent and 45 percent of HNW individuals, respectively, indicated that they would reduce their charitable giving if these tax policy changes occurred.”

Only 10 percent of the high net worth survey participants report that reducing their tax obligations is the motivation for their charitable giving, but 46 percent of HNW advisors believe that reducing taxes is the reason.

The U.S. Trust reports indicate that her wealthy clients—perhaps not in the Zuckerberg/Ellison class, but comfortably ensconced in the nation’s top 1 percent—want to talk about values, want to think about their charitable giving plans, want to “instill charitable values” in their children and grandchildren, and for their giving want to better understand how nonprofits might use their gifts and how they can better connect personally with the charities they might want to support.

Hopefully, if the advisors are telling the truth about their interest in talking philanthropy with their clients, they are advising them of the greater good to be accomplished by giving to nonprofits than by buying entire islands as their personal Xanadus. Hopefully, if the high net worth donors in the U.S. Trust surveys are telling the truth, they really want to do something useful and meaningful with their money rather than sticking it to the taxpayer for maximum tax deductions. It would be so much more meaningful if the super-rich and even the not-quite-so-super-rich were to eschew the tendency for conspicuous consumption and substitute social responsibility as their normative behavior.

“Throughout the entire evolution of conspicuous expenditure, whether of goods or of services or human life, runs the obvious implication that in order to effectually mend the consumer’s good fame it must be an expenditure of superfluities,” wrote economist and sociologist Thorstein Veblen in his treatise on the leisure class more than a century ago. “In order to be reputable it must be wasteful.” In the charitable giving of high net worth individuals and households, hopefully the trend can be to shift from conspicuous consumption to conspicuous social responsibility.

KEYWORDS: philanthropy, donor motivation, giving and volunteering, how donors give, why donors give, high dollar donors, donor advised funds, foundations, philanthropists, donors, charity, personal giving, high net worth individuals, Mark Zuckerberg, Larry Ellison, U.S. Trust, charitable causes, Claire Costello, giving to education, giving to religious groups, secular giving, conspicuous consumption, tax deductions, tax incentives, The Philanthropic Initiative, charitable deduction