Author’s Note: This is the second in a series of articles growing out of a session I conducted at the CharityChannel Summit 2003 in Palm Springs in March. In this series, I will present a strategic perspective on fund development that will, if adopted, substantially increase the volume of funds raised in the near-, medium-, and long-term. Warning: My perspective does not come from a text book on fund raising. Rather, it is a perspective gained in my two decades in the trenches, where I’ve built, managed, and/or advised several hundred fund development programs. My having a front row, center seat at CharityChannel these past 10 years, where I’ve carefully followed thousands of forum submissions around the topic of fund raising, convinces me that it’s more important than ever to gain clarity on the role of the fund development function for nonprofit organizations and educational institutions. I hope this series will stimulate new thinking and help more than a few substantially to increase fund-raising effectiveness.
I start where I left on in Part 1:
Nill’s Amazing Truth of Fundraising No. 4: Rich people have more money than others.
It’s not that Nill’s Amazing Truth of Fundraising #4 should come as a revelation. It is that so many development officers waste development resources as though they’ve never considered it. To the extent that they are focusing development resources on any but those who have the capacity and readiness to make big gifts, they are missing the main opportunity.
The simple truth is that the 4.9% of families with net worth of $1 million or more make 42% of the total during-life contributions to charitable organizations. Of this small but wealthy group, those families with $1 million or more net worth and annual incomes exceeding $1 million, though they comprise only 0.2%, contribute 14% of all during-life (“inter vivos”) giving while 4.7% with income less than $1 million contributed 28% of all current giving. Source: Paul G. Schervish and John J. Havens, “The New Physics of Philanthropy: The Supply Side Vectors of Charitable Giving/ Part 1: The Material Side of the Supply Side,” November 2001, The CASE International Journal of Educational Advancement.
Inter vivos giving is only the tip of the iceberg, however. The simple fact of wealth is that individuals who hold it are mortal. When they die, that wealth is released to four, and only four, possible places: estate fees, estate taxes, heirs, and charity.
Boston College Researchers John J. Havens and Paul G. Schervish project that between 1998 and 2052, at least $41 trillion and as much as $136 trillion will be released. Of this amount, between $6 trillion and $25 trillion will be transferred to charitable organizations in the United States. Source: Havens and Schervish, “Millionaires and the Millennium: New Estimates of the Forthcoming Wealth Transfer and the Prospects for a Golden Age of Philanthropy,” October 19, 1999, Boston College Social Welfare Research Institute.
Imagine steering your organization’s fund development program into the center of the largest wealth release in the history of mankind. It is a central theme of this series that development offices can substantially increase their fundraising effectiveness by focusing their resources on this 4.9% of families with estates of $1 million or higher. In future installments, I will suggest how to go about that—with or without a big budget for fund development. For now, though, we’re seeing the big picture. Be patient.
Although much media attention has been given to the philanthropy of relatively young and rich entrepreneurs, the fact is that the Baby Boom generation, with the possible exception of a small percentage of it oldest members, does not yet sense its mortality and is not yet dying off. Anecdotal media accounts to the contrary, Baby Boomers have neither the wealth (yet) nor the vision (yet) to make the big gifts that their parents can, and are, making. If this is true of the Baby Boomers, it’s especially true of Generation X’ers. It is the parents of Baby Boomers, sometimes known as the “Ikes” or the “Eisenhower Generation,” who are the ones making the substantial gifts—both during life, and as of their demise.
The Stock Market is in the Tank—Doesn’t that Change Everything?
What about current or future recessions or downturns in the stock market? The wealth release projections are long-term projections. The lowest estimate of wealth release, $41 trillion, assumes only a 2% secular real growth rate. Indeed, since 1950 the value of all corporate stocks grew at a real rate of 4.47%, and total household wealth 3.34%. According to Havens and Schervish, “the $41 trillion estimate of wealth transfer is not affected by short-term economic fluctuations.” Source: Havens and Schervish, “Why the $41 Trillion Estimate is Still Valid: A Review of Challenges and Questions,” originally published in The Journal of Gift Planning, Vol. 7, No.1, January 2003.
Since we are looking at things through the lens of “strategy,” there is no question that over the long haul, programs that focus on such prospective donors will do far better than those that don’t. But what about the psychological effect on these donors of the drop in the values of their portfolios? The fact is that Americans with net worth of $1 million or more are giving 42% of the current gifts. Even if it turns out that there is some transitory drop off in current giving by wealthy older Americans—it would only be a very minor drop overall—there is no indication that the stock market problems have changed the readiness of the older members of this cohort to carve off substantial portions of their estates for charitable giving at death.
How Old is “older?”
At age 60, which is about retirement age, even wealthy families tend to begin spending down their assets. But, because they are wealthy, the spend-down tends to become less as they approach 70. According to Havens and Schervish, “when their life-cycle savings rates are combined with 2% secular growth in their wealth, wealthy families see their wealth begin to grow at age 70.” Source: Havens and Schervish, “Why the $41 Trillion Estimate is Still Valid: A Review of Challenges and Questions,” originally published in The Journal of Gift Planning, Vol. 7, No.1, January 2003. Given that Americans are living longer, the growth in their estates works in favor of ever-increasing capacity to give.
So, a rule of thumb is to focus on prospective donors age 70 or higher, with a net worth of at least $1 million.
Which brings me to the next Nill’s Amazing Truth:
Nill’s Amazing Truth of Fundraising No. 5: Older rich people realize that they have to do something with their wealth—they sense their mortality.
To receive a big gift, the development officer must be in communication with a person with the capacity to give, and the motivation to give. Older donors, say, those age 70 or higher, with a net worth exceeding $1 million or more, are the most likely to have both.
The simple fact is that older donors are aware of their mortality, and have lived long enough to understand the value of leaving some of their wealth to a worthy philanthropic organization. In fact, as an attorney in my third decade of law practice, I have counseled countless older people re their estate planning. What strikes me is how many bring up the subject of charitable giving without my having to ask. They are primed and ready to give! Let me put it this way:
Nill’s Amazing Truth of Fundraising No. 6: Some older rich people would love to give you a sizable donation—once they know who you are and what you do.
If you focus on rich, older Americans, you’ll be communicating and interacting with as many as possible. When you do, you’ll already be 90% of the way toward a big gift. Your job then becomes two-fold. First, you want to bring them into a full appreciation of the vital work that your organization or institution is performing, so that they can see how their big gift will make a difference. Second, they will often be relying on you, to a greater or lesser extent, to lead them in the best way to transact the gift. The former is part of the cultivation process, the latter part of the gift-structuring process. I’ll cover both of these topics in future installments.
In the next installment, I will suggest some techniques on how to find and attract older, rich people—whether you have an enviable development office budget, or are struggling along with scant development resources.