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Philanthropic Planning: Why Donors Give and Where Donations Go Wrong

First, I want to give a bit of background here so you know my perspective.


I've been on both sides of the table when it comes to charitable giving. On one hand, I've helped clients make their giving more effective. On the other, I've helped some great organizations with their planned giving programs and I've sat with them as they made their ask of donors. Beyond that, I've been a member of the National Association of Charitable Gift Planners and I hold the Chartered Advisor in Philanthropy designation.



Five sporting clays shooters at a fundraiser

(I love history, so I couldn't pass up the chance to both raise money for The Filson Club and hang out with some great friends.)



I'm far from the most experienced but I've seen enough to come to some conclusions regarding philanthropic planning.


First, I'll talk about why donors give. You might be surprised at the primary reason for most donations.


Second, I'll break down the 3 most common mistakes I see in charitable giving. Luckily, they're almost all fairly easy fixes.


Why Donors Give

The science behind planned giving is fascinating. Psychologically, we are predisposed towards altruism because of evolution and because it simply makes us happy. It’s intuitive that giving makes us feel good, most people can empathize with that through their own experiences. The idea that giving is an evolutionary trait is a bit more counterintuitive.


While we think of evolution as a Darwinian survival of the fittest individuals, in which the weak are culled and the strong survive, it doesn’t only apply solely to individuals. Survival of the fittest also applies to civilizations. Cooperation and generosity are evolutionary ideas by which the strong have supported the weak, which strengthens the group as a whole. In a counterintuitive way, the strong supporting the weak strengthens the entire society.


Generosity also has roots in the idea of kin selection, where individuals place the good of a small group of related individuals over their individual success. In this way, the family group survives, as does the bias towards generosity, even if the individual’s success isn’t maximized.


Giving makes us feel good, that isn’t a revolutionary statement. But why does it elicit an emotional response? Giving to others triggers a release of endorphins in our brain, similar to that from a runner’s high. Realizing this makes it easier to understand why you feel good after you’ve helped someone else. It’s been theorized that this neurological response developed along with the evolutionary move towards generosity.


According to the 2016 US Trust Study of High Net Worth Philanthropy, most donors give for the same reason that I give to St John Center: they believe in the mission of the organization and they believe that their gift can make a difference.


There are many reasons why you might choose to give to a nonprofit, but most of the reasons can be broken down into a few major categories.


·       Because you believe in the mission of the organization

·       Because you believe that your gift can make a difference

·       Support organizations with whom you’re involved

·       To give back to your community

·       Out of religious belief

·       Out of political or philosophical belief

·       In response to a need

·       Because you were asked

·       Tax benefits

 

Believing in the mission and impact of an organization


Believing in the mission of the organization and believing in their impact are highly related. In fact, they go hand in hand. If you don’t believe in the mission of the organization, their impact probably isn’t of consequence to you. Likewise, if you don’t believe an organization is able to make an impact, it doesn’t matter how much you believe in their goals.


Donors feel empowered when they believe their gifts are making an impact. In fact, almost all giving can be traced back to impact. When you break it down, almost all giving is due to impact. Without impact, few of the other reasons matter. If an organization doesn’t actually make an impact, they’ll eventually lose their support. I’ve seen many donors stop donations to a group because they felt their donations weren’t making a difference. Sometimes their donations were used ineffectively, sometimes the impact just wasn’t being communicated well enough to the donor. Either way, when donors feel that they’re not making an impact, they often look to make a change. 


It's likely that mission and impact coexist with each of the other reasons for giving on this list. At the root, mission and impact must align with any gift that you want to make. Whether that’s giving to a church or your alma mater, you have to believe in their mission and the impact that they have on others. Without that alignment, your connection to an organization is essentially irrelevant.


To support organizations with whom you’re involved


One of the most common reasons behind giving to the same causes is a personal connection. This can be donating to your alma mater, supporting the Boy Scouts, or maybe the local bar foundation. When donors give to the same organization year after year, it’s often because the donor has benefitted from the organization’s work, or they’ve seen the work up close.


This can really be broken down into two different underlying reasons. The first is because you’ve had a positive experience with an organization in the past. Maybe your college prepared you for a successful career. Maybe you were an Eagle Scout and that’s benefitted you throughout your life. Or maybe you had a great experience at a summer camp, which was foundational to your growth. I attended a summer program which was foundational to my development when I was 17, the Kentucky Governor’s Scholars program. I made lifelong friends there that I still talk to on a daily basis, decades later. Maybe you have had a similar experience.


The other reason here is because you’re currently involved with an organization, whether that’s as a volunteer, a board member, or in another way. High net worth individuals are twice as likely as the general population to volunteer their time, with 49.7% of HNWI’s volunteering annually. The correlation between volunteering and giving is incredibly strong as well. Only 15.7% of volunteers reported that they didn’t also support organizations financially. Finally, when you compare average donations by HNWI’s, the average contribution to a group at which one volunteers is nearly 56% higher than the average contribution made by someone who doesn’t volunteer for that organization.


This difference in financial support goes back to mission and impact. When you see the impact made by an organization, it’s easier to understand how they’re going to use more funds to further their mission. You feel invested in their success, both financially and in sweat equity.


Let me tell you about one of my favorite nonprofits, the St John Center for Homeless Men. The St. John Center provides services ranging from helping clients obtain documents like Social Security cards, ID’s, and birth certificates to employment and housing. During 2021, over two thousand clients received services at the St John Center. I see the impact they have on their clients, gentlemen who have been forgotten by the system and who have often fallen between the cracks.


I give to them on a monthly basis. They’re one of the only organizations I give to regularly. I also volunteer there every week. Why do I give to them? I give to them because I see the impact they have on the lives of their clients. They help men find jobs and housing. They help with documents. They even help men find drug rehabilitation. More than all that, they help men regain their dignity. Something as simple as a shower and a place to get clean can make a huge difference in making one feel human again.


Where Gifts Go Wrong (& why Philanthropic Planning is so valuable)


I see the same three mistakes over and over, so I think they’re worth mentioning.


  • Shotgun gifting is making donations without an overall strategy. This ends up being a large number of smaller gifts, which dilutes the overall effect.

  • Not being involved. If you’re making a major gift, you should work with the charity to ensure that your gift fits the needs of the charity. After the gift, you should stay involved so you can see the fruits of your donation.

  • Not considering the tax impact. Not all donations have the same tax implications. If you’re thinking of making a larger gift, you need to talk with your tax advisor about how to best structure the gift to get the most tax benefit.


Let’s talk more about how to structure gifts to get the maximum impact.


As I mentioned, not all gifts are taxed the same. I see many, many donors writing checks each year and this is rarely the best option to maximize your tax benefit.


I do need to mention that I do realize that tax benefits aren’t the main reason for most gifts. Instead most people give because they want to make an impact. The benefit to being tax aware in your giving is that you can increase the size of your gift when you’re not giving up a portion to the government.


So back to philanthropic planning. If you want to define your charitable legacy through giving, you need to have a plan in place to do it. Check back next week for my guide to building your charitable giving plan.


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