Americans are far more generous than most realize. According to Giving USA, there was an estimated $295 billion in philanthropic giving last year. And according to the Giving Institute, about 65% of US households with annual income less than $100,000 gave to charity last year.
Giving has long been a tradition for wealthy individuals (think Carnegies and Rockefellers), but there has been a renewed interest in philanthropy among today’s high-net-worth and ultra-high-net-worth families. Spurred partially by the high-profile announcements of Warren Buffet and Bill Gates, these families are reassessing how they give. Many have changed the amount they give, their philanthropic strategy, and to what organizations they give.
Cerulli analysts have seen strategic philanthropy become the dominant form of giving for wealthy families. The days of “checkbook giving” are long gone, and families are now giving to causes where there is both accountability and quantifiable results. This type of philanthropy looks to achieve the most bang for their buck and make a meaningful difference. In many cases the family takes an active role managing the money, sets up their own foundations, or hires philanthropic advisors to oversee spending.
Individuals and families tend to give when there is a passion for a particular cause or have a personal connection. This might mean funding after-school programs, textbooks for third-world children, or medical research for a particular illness. Whereas established institutions such as the United Way or the Salvation Army have noble but broadly defined mandates, many of today’s philanthropists are attempting to find solutions to very specific problems.
Why has the tone and structure of philanthropy changed in recent years? Cerulli analysts have theorized that as our safety net has slowly been eroding through budget cuts and political differences, individuals have stepped up to take action. Philosophical forces may also be in play: in a post-9/11 world, many wealthy individuals have eschewed the pursuit of 500-foot yachts in favor of humanistic endeavors. Ego and immortality could be factors, though many large gifts are bestowed anonymously. Experts also point to the Paris Hilton effect: as the ultra-wealthy seek to avoid creating spoiled trust fund babies, they hope that giving more money away will motivate their children to pursue their own careers. Finally, wealthy individuals of all stripes increasingly want to avoid leaving anything to the IRS.
Strategic philanthropy also encourages individuals to give more generously and distribute assets earlier in their lives. As a result, we have seen a bigger commitment to philanthropy and we expect this trend to continue. We expect to see more families approaching their wealth managers to modify their giving strategies. Advisors, private banks, RIAs, family offices, and institutions should all be prepared to meet this challenge in order to retain and attract clients.