Philanthropy Through Recession

How Savvy Organizations Weather Uncertain Times

Table of Contents

Introduction

Every recession is unique and shaped by a different mix of economic, political, environmental, and social influences. There have been 11 recessions in the United States since 1948, averaging about one recession every six years. Before 2007, recessions lasted for about 11 months on average. The Great Recession of 2008 lasted 18 months, and the 2020 recession lasted for just two (Investopedia, 2022). 

This report will illustrate the numerous possible impacts that recessions can have on the philanthropic sector. Informed by historic trends and research, we will offer insights that you can leverage to inform your ongoing multi-pronged strategy.

While our goal is to illuminate how past recessions have affected the philanthropic sector, wecannot predict all potential implications for your organization. In this report, you will find a wide array of historical research against the backdrop of long-term trends. It can be read in its entirety or used as a gateway to more in-depth, related resources. We have provided an overview of this nuanced topic with excerpts, links, and data insights to help you successfully navigate the uncertainty that accompanies occasional economic downturns. (Spoiler alert: The sector has remained relatively strong through countless recessions. Keep reading to find out why.) Let’s begin!

 

Philanthropy Through Recession

By and large, philanthropy is quite resilient and can withstand short-term economic fluctuations.

Most recessions over the last 40 years have not significantly impacted the sector. Only TheGreat Recession had lasting effects on charitable giving. In this instance, it took over three years to recover to equivalent giving levels. In the graphs below, you can see that total giving has steadily increased over the last four decades, even when adjusted for inflation. When recessions are highlighted, you can see that while the impact is evident, in the long run giving continued to rise.

Most charitable giving in the United States comes from individuals with high net worth. The S&P 500 is the strongest indicator of wealth and, therefore, a direct correlation to high-net-worth giving. Yet, while giving follows the general up- and downward trends across time, it typically lags behind stock market volatility by about two years, effectively shielding philanthropy against short-term fluctuations.

External factors can affect different industry subsectors in diverse ways. During The Great Recession of 2008, many subsectors saw decreases in giving. Yet, with a heightened need to access social services, healthcare, and scholarships, donors rose to the occasion by funding those causes. Today, as philanthropy continues to respond to the unique impacts of COVID-19and the major social movements of the last couple of years, it remains too early for recent market volatilities to be felt related to giving (Tipping Point, 2021).

 

7 Steps to Take Today

Through historical analysis and understanding of recent trends in charitable giving, some key themes emerge that foster resilience (Charitable Giving Report, 2021). Here are just some examples of how you can continue to proactively future-proof your organization:

  1. Embrace digital transformation. From reducing your manual processes through workflow automation to thriving in remote working environments and embracing new platforms, organizations must adhere to a new focus on delivering strong digital experiences to their stakeholders.
  2. Find and target major donors. Data from our Vital Signs series found that, while the overall amount of dollars donated continues to grow, the number of individuals donating money since the last recession has been shrinking. Organizations should familiarize themselves with their donors on file as well as prospects who have the capacity to make a major gift. Additionally, many major donors search out alternative vehicles for giving and tax benefits to make their philanthropic dollars go further. Organizations should ensure they are prepared to accept non-cash gifts.
  3. Focus on donor retention. While first-year donor retention remains a challenge among nonprofit organizations, multi-year retention rates remain strong. Marketing and fundraising strategies must be aligned to best frame and communicate the societal values embraced by an organization’s mission and programs. 
  4. Invest in a sustained giving program. Data shows that revenue per donor increases in the years preceding the two years following a donor’s commitment to a sustainer program (50% to 300%, with even the low end far exceeding the typical return for non-sustaining donors). As a strategy choice, there is substantial value to be had in sustainer fundraising  (Sustainers in Focus, 2015-2016). 
  5. Add to your donor pool. Organizations need to focus on strategies that address the changing macroeconomic environment we find ourselves in. To provide the most long-term growth, organizations must continually add to their pool of donors. 
  6. Harness the power of peer-to-peer fundraising. The acceleration of avenues like crowdfunding, do-it-yourself, and peer-to-peer fundraising will continue to be a cohesive component of overall fundraising strategies. Speaking to individuals on a one-to-oneversus a one-to-many level, these campaigns continue to gain traction, connecting people to the causes they care about through the channels they regularly use. 
  7. Diversify your revenue mix. Philanthropic organizations follow a multitude of revenue models. While different organizations may thrive using various combinations of revenue sources, organizations should avoid an over-reliance on certain sources. 

Economic Background

The charitable sector is not an island but a part of the broader economy. The same macroeconomic factors that influence the US economy can also influence the philanthropic sector and, often, significantly impact philanthropic efforts. While many factors can affect movement in charitable giving, a few economic indicators rise above the rest (The Macroeconomics of Fundraising, 2015).   

The Giving USA Foundation found three factors with the strongest relationship to individual charitable giving.

1. Wealth

Individual wealth can be represented reasonably well by the S&P 500 Index and is the greatest predictor of changes in charitable giving.

The Giving USA Foundation found that the S&P 500 was the strongest single predictor of charitable giving out of all the factors they considered for their annual revenue estimate models. The S&P 500 is far more volatile than the comparatively stable charitable giving trends,but the two increase and decrease together—with changes in giving usually lagging changes in the S&P 500 by one to two years.

 

“Because stock market values are an indicator of financial and economic security,” the Giving USA Foundation explains, “households and corporations are more likely to give when the stock market is up.” This is particularly true, they found, for high-net-worth donors, who are more likely to be directly invested in the stock market. In addition, gifts of appreciated stock make excellent charitable giving vehicles for high-net-worth donors when their investments are doing well.

2. Income

Individual income can be assessed through Gross Domestic Product (GDP).

The philanthropic sector represents 2.1% of the United States GDP, the market value of all goods and services produced in the country. In addition to trends in total giving, gross domestic product (GDP) is one of the most helpful indicators for tracking and explaining changes in revenue across the nonprofit industry. Research shows that charitable revenue growth rises during periods of strong economic growth, when the GDP is growing, and slows or even falls during periods of relative economic weakness.

Charitable giving in the United States has made up about 2% of total GDP for more than 40 years. In “boom” times, it has reached as high as 2.3%, and in recessions, it has dipped as low as 1.7%. This means that, in a slow economy, not only does giving slow down, but it also declines as a proportion of the average American’s spending dollar.

3. Tax Policy

When charitable deductions are higher, charitable giving rises accordingly.

Charitable giving is one of the primary ways that higher-income taxpayers reduce their tax liabilities. It is unlikely that the deductibility of their gifts affects which organizations donors decide to support, but it almost certainly affects how much they decide to give, as well as how much they choose to leave to nonprofits as charitable bequests.

Although philanthropy is resilient through economic cycles, one form of giving has shown an ability to hold ground, especially during short term shocks to the economy: donor-advised funds (DAFs). In 2020, with the COVID-19 pandemic raging and social justice movements taking to the streets, giving from donor advised funds increased by 27%. Not only did this form of giving increase, but it flexed even more than overall giving to the areas of the philanthropic sector most in need of resources. For example, Human Services giving was up 79% from DAFs compared to an overall increase of 9.7%; Societal Benefit was up by 51%; and Health up by 54.2% (National Philanthropic Trust, 2021).

During the more protracted downturn of The Great Recession, giving from DAFs decreased by 7%, but that was significantly less than the contributions into DAFs that year, which decreased by 25%. It also rebounded quickly in 2010. (National Philanthropic Trust, 2020. Giving USA, 2021).

In essence, these donors can split their giving decision in two. But with most DAF accounts building assets over time, donors have a ready stash of cash available to give when conditions require extra support. The contribution amount is more of a financial decision based on their available resources (disposable income, appreciated securities, etc.) or, more importantly, by their perception of their resources. But once the funds are in the account, their giving is often more of a decision of the heart—providing the donor flexibility to support causes in times of need. This can help smooth out the flow of funds to nonprofits. In 2009, the amount of funds granted out from DAF accounts to charities was more than the total funds contributed to DAFs (Heist and Vance-McMullen, 2019). During the years leading up to and following the recession, the opposite was true—contributions in were greater than outgoing grants.

A mechanism like the DAF can be highly supportive of nonprofits in good times and bad. But it is during the bad times that the true value of DAFs comes to light.

A Few Tips for Making the Most of DAFs

  • DAF donors are intentional givers. If a charity has DAF donors recognize them for who they are, inform them of your impact, and look to increase their giving.
  • Databases often obscure these donors. Look to define and tag these donors in your databases. With 13% of giving coming through DAFs, you probably already have DAF donors in your database.

While it is difficult to determine the future course of the COVID-19 pandemic and the extent of its economic impacts, including a potential recession, there are valuable insights to be gleaned from historical trends in giving. Below, you will find key trends and donor behaviors to watch for and consider as you develop a resilient fundraising strategy.

Charitable Giving Trends During Recessions

Adjusted for inflation, giving increased by over $300 billion between 1979 and 2021. Total charitable giving has increased or stayed flat in current dollars every year since 1979, except for three years that experienced significant economic declines: 1987, 2008, and 2009.  

While these declines coincided with severe economic downturns, overall charitable giving rebounded alongside the economy as it recovered. Giving USA Foundation research indicates that, in the past, it has taken an average of three to four years for inflation-adjusted charitable giving to rise back up to pre-recession levels. Between 2008 and 2019, giving increased by $77 billion, from nearly $350 billion in 2008 to $427 billion in 2019. The Great Recession ended in 2009, and yet for the following decade, from 2010 to 2019, the total growth in inflation-adjusted giving was 33%. Giving in 2019 reached nearly $450 billion.

Variances to Charitable Giving Across Subsectors

External factors can affect different industry subsectors in diverse ways. While the effects of any economic instability over the past few years remain to be seen at the time of writing, many remain responsive to society’s most pressing needs. A focus on human services and economic security tends to spur giving in those areas. During the 2008 recession, for example, many subsectors saw decreases in giving. Yet, people’s heightened need for access to social services, healthcare, and scholarships encouraged giving to those subsectors. Differences in the recovery timeframe were also evident during The Great Recession. While most subsectors rebounded in the following years, giving to the arts, culture, and humanities subsectors did not exceed pre-recession levels of giving again until 2015, in inflation-adjusted terms. 

Long-term Changes to Giving Behavior

In recent years, the breakdown of charitable dollars given by individuals, foundations, bequests, and corporations has fluctuated. Over the last 40 years, giving by individuals has begun to decline as a percentage of total giving, but remains the largest contributor to overall giving year over year. The increasing concentration of wealth throughout the US has also played an outsized role in creating foundations. This trend, coupled with rising income inequality and the emerging influence of DAFs (Donor-Advised Funds), continues to increase the share of giving by foundations and decrease the percentage of giving from individuals. 

History also shows us that there have been long-term changes in allocations of charitable dollars across subsectors. For instance, while faith communities continue to receive the majority of giving yearly, it has declined as a share of giving to all organizations since the early 1980s. This reallocation has allowed additional subsectors to flourish, furthering their growth. Throughout the last 40 years, the education subsector has comprised 10% to 14% of all giving. Giving to education has been at its strongest within the last five years. This subsector is second only to faith communities in receiving the most charitable giving yearly.

  • Shift your team from a scarcity mindset to an abundance mindset. When the wolves of inflation, wage increases, and soaring energy costs are at the door, today’s nonprofit has more growth opportunities at their disposal than ever before. The finance team can use the data they have, the tools at their disposal, and the lessons they have learned over the past two years to guide their team during an uncertain economy. 
  • Understand where you are now. Even with an increase in opportunities, you cannot ignore the signs of a bumpy road ahead. When the economy is unpredictable, or everyone is predicting a downturn, it helps to take stock of where you are, what your goals are, and how your priorities are aligned. 
  • Create momentum in the short term. When there are storms in the forecast, it makes sense to be prepared. While most of your financial ducks should be in a row from experiencing the past few years, it never hurts to review the small ways money flows in and out of your organization. 
  • Plan for the long term. Given a long enough horizon, nonprofits will experience every economic cycle at least once. The organizations that successfully weather storms look farther than next week or even next year. Short-term adjustments are crucial for surviving economic uncertainty, but to thrive, you need to be prepared for the long-term shifts that will affect your organization. 
  • Create a foundation for the future. Learn more in this Cost Containment Guide for Nonprofit Finance Teams. 

Conclusion

As your organization keeps an eye on the larger economic landscape, rest assured that downturns such as recessions are not, in and of themselves, indicators that charitable giving will be impacted in the long term. This report is just one resource your organization can use to better understand the macroeconomics of philanthropy. As the last few years have shown us, change is here to stay and can promote more critical and nimble approaches to fundraising and donor management.

  • Ashley Thompson, Managing Director, Blackbaud Institute
  • Matthew Nash, Executive Director, The Blackbaud Giving Fund
  • Kate Averett Anderson, Content Manager, Blackbaud Institute

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