Wealthy Still Giving, but Less

The study found that 98% of wealthy households donated to charity in 2009, which is “remarkably consistent” with the percentages from 2005 and 2007, according to a news release from BofA Merrill Lynch.  It’s also still common for wealthy households to donate a specific percentage of their income to charitable causes – in 2007, it was approximately 11%, and in 2009, it was just over 9%.  Even though these percentages are not drastically different, the overall average gift amounts decreased 35% from 2007 to 2009.   

“Charitable giving follows the overall economy,” said Una Osili, Ph.D., director of research for the Center on Philanthropy at Indiana University, which has partnered with BofA Merrill Lynch for the ongoing studies. “When economic conditions improve, charitable giving improves as well.”

High-net-worth households reported that their top motivations for giving were:

• Being moved by how their gift can make a difference (72%)
• Feeling financially secure (71%)
• Giving to an organization that will use their donation efficiently (71%)
• Supporting the same causes or organizations annually (66%)

“These top responses around impact, efficiency and financial security indicate that during these difficult financial times, when community needs are more acute, donors are particularly concerned about whether their contributions are being used effectively. They want to invest their charitable assets wisely in order to get the most bang for their philanthropic buck,” said Claire Costello, national foundation executive at Bank of America Merrill Lynch.

Conversely, there are also reasons why wealthy households would stop giving to a certain organization.  The study found the most common reasons to stop giving are:

• Too frequent solicitation/organization asked for inappropriate amount (59%)
• Decided to support other causes (34%)
• Household circumstances changed (e.g., financial, relocation, employment) (29%)
• Organization changed leadership or activities (29%)

Taxes also play a role in giving. About two-thirds (67%) of wealthy households would somewhat or dramatically decrease their charitable contributions if they received zero income tax deductions for their donations; 47% responded this way in 2007.

High-net-worth individuals see their donations as an investment, and one that many do not take lightly. Thirty-five percent of wealthy households said they can tolerate above-average or substantial risk in their personal investments, yet 23% reported high levels of risk tolerance when it comes to their philanthropic investments. Furthermore, while only 10% of households reported they were not willing to take any risk in their personal investing, one quarter (26%) cite being completely risk averse with their philanthropic investments.

“We believe they take less risk with these assets than they do with their personal investments because they understand that their philanthropic capital ought to be invested with appropriate levels of risk given that it is intended for public benefit,” said Costello.

For advisers involved in high-net-worth wealth management, charitable giving should not be overlooked. Consistent with trends observed between the 2006 and 2008 studies, the 2010 study found a 39% increases in donors’ use of financial advisers.