Friday, January 23, 2015

How Income Inequality Affects Fundraising

        Income inequality has been in the news quite a bit for the last several years, and during that time, it has only grown worse.  The United States has the dubious distinction of being the most unequal developed country in the world and our inequality even surpasses many less developed countries.  The situation is so bad that Janet Yellen, head of the Federal Reserve Bank, (not an institution known for its socialist tendencies), said in a major speech, “I think it is appropriate to ask whether this trend (inequality) is compatible with values rooted in our nation’s history, among them the high value Americans have traditionally placed on equality of opportunity.” She noted that income and wealth disparity are near the highest levels in 100 years and probably much higher than for much of American history before then.  Sadly, she offered few solutions, but that she even spoke about it is striking.
To give you a sense of just what this means, look at these startling facts:
--From 2009, the beginning of the so-called recovery, until now, 95% of all the national income gains went to the top 1%  (from economist Emmanual Saez (reported in Poverty and Race, Vol 23, #2, April 2014):
--The bottom 80% of Americans have seen an income drop of about 30% since the 1970’s.  (
--Half of the US population lives in or near poverty.  (Wikipedia
And the facts go on and on.  Follow any of these links, and you will read even more depressing statistics.
       For people who work in nonprofits, income inequality has another consequence, which is that our donors are also increasingly unequal in their ability to give, regardless of their desire to help.
For organizations that rely on foundation grants, the news is mixed.  As long as the market holds, foundation funding will be available, although since foundation funding is only 15% of the total money given in the private sector, that is not enough to fund even a fraction of the number of organizations that will be applying. If the market corrects (a good thing and generally temporary) or if it crashes again (the market goes down and investors begin to flee, generally leading to a recession), foundation giving will once again go down. Because grantmaking is tied to market returns on endowment investments, foundation giving goes up when organizations need it least (when the economy is on an upswing) and down when they need it most (when the economy is doing poorly).
         However, for the thousands of nonprofits that rely, even in part, on a broad base of donors, income inequality is a big problem. Already many of my clients are reporting that while their donors are still giving, they are shaving down the size of their gifts. So $50 donors are giving $40, $35 are giving $25, and so on.  The bottom 90% will continue to give, and will give as generously as they always have, but their giving will reflect that they have less money than they used to.  John Havens, associate director of the Center on Wealth and Philanthropy at Boston College, notes, “the average household donation of the middle class and poor has declined from $1,156 in 2006 to $977 in 2012. These folks really have not recovered from the recession.”  Other studies show that the poor and middle class gave a bigger share of their income to charity in 2012 than in 2006, however, that does not show up as an increase because their income fell during that period. On the other hand, wealthy people decreased the share of their income that went to charity but their overall giving increased by $4.6 billion because their income surged so much.  (CSM  Weekly, ‘Giving Rates Reveal US Income Gap’ Nov 24, 2014, pg 34)
           Inequality affects younger donors even more.  An Urban Institute study from March 2013 reported that while the net worth of those people 47 and older is roughly double that of someone the same age 27 years earlier, today’s adults in the mid-30s or younger have accumulated no more wealth than their counterparts 27 years ago. Specifically, those ages 29 to 37 actually lost significant ground; they saw their average net worth drop 21% between 1983 and 2010. The study’s authors blame stagnant wages, diminishing job opportunities and lost home values during the great Recession, which hit the younger generation the hardest.
        We also know that income inequality causes a psychological reaction in a donor’s willingness to give.  When people for whom $100 or $250 is a large gift are surrounded by stories of mega gifts ($1 million donations are now common), they begin to feel that their donations are not worth making, particularly when they have less money than they used to.  
       So given all this cheerful news, what should your organization do to address the effects of income inequality on fundraising?
1) Learn what fair and just tax policy would look like. We must reverse the redistribution of wealth that is placing the majority of wealth in the hands of the fewest people, and the only way to do that is through progressive tax policies.  Yet most of us don’t really have a lot of opinions about what and how much any person or corporation should pay in taxes.
2) Make sure you thank all your donors and that you truly value all gifts.  This requires focusing on donors and not just donations.  Tell stories of how smaller gifts have made a difference in your work, and how aggregating small donations leads to big change.   Consider not putting your biggest donor’s names in big print and your smaller donors in small print, but rather listing them all in alphabetical order.  (You will have far fewer anonymous donors if you do this.)
3) Focus a lot of attention on your monthly or recurring donors.  People who can’t afford $200 all at once often can afford $20/month.
4) Make sure that common ordinary people feel invited to donate to your organization.  If your newsletters and reports just focus on foundation funding or your corporate sponsors, ordinary people will not think, “I could be a donor.”
        Many social scientists and economists believe that income inequality is one of the most corrosive problems a society can face.  Nonprofits are already being called on to handle the poverty, health, education and environmental problems caused or exacerbated by the widening gap between rich and poor.  We must also show leadership in proposing lasting structural change that will close this gap.  For too long, fundraising programs have simply tried to adapt to whatever was going on in the economy, but now we have to lead the way out of this unequal society—engaging our organizations, our donors, and our sector to agitate and advocate  for real change.
(This blog post is similar to an article I just published in the Klein and Roth e-newsletter:

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