Richer Lives: why rich people give is an in-depth study of what drives rich people to give to charity, based on new research with over 80 wealthy UK donors, as well as a dozen philanthropy advisers and 16 fundraisers and other experts. The donors were divided equally between a cohort who were first interviewed by Theresa Lloyd in 2002 for Why Rich People Give (‘established’), and a set of younger donors, some relatively new to philanthropy (‘emerging’).
While the underlying motivations remain unchanged – passion for a cause, wanting to make a difference – we identify a number of changes between then and now, both in terms of the wider philanthropy landscape and in the ways in which donors feel about philanthropy and how they operate. We also note a number of disparities between established and emerging donors, including the nature of the relationship that they expect with the organizations that they fund.
Giving by the rich is growing but in a context of increasing wealth disparity, not confined to the UK. Some of the wealthiest people are themselves deeply uncomfortable with this situation of massive wealth-holding by a few in the face of increasing need, and have responded accordingly. Nevertheless, even allowing for patchy information, we see that while the richest 10% now account for around 40% of all taxable income and well over 50% of total wealth, they still only account for just over 20% of total giving.
Why do rich people give?
One key strand in the broader environment is the rise of ‘enrichment’ as a key driver of philanthropic activity, including the Giving Pledge. While philanthropic acts are motivated by a complex array of factors, our research suggests that the one shared motivation is that it is a means of enriching donors’ lives in many ways. These include feelings of satisfaction at using their private wealth to support the causes they care about; the enjoyment of having unusual experiences and developing relationships with interesting people working in charities, as well as fellow donors and beneficiaries; the opportunity to integrate giving into their social life and retirement activities; and the beneficial impact on their family.
Indeed two-thirds of the rich donors we surveyed are concerned about leaving an over-large inheritance to their children, and of these half see philanthropy as a solution to that problem. Philanthropy also plays a role in parenting by enabling the demonstration of values in action, by bringing the family unit together to discuss good works, and by creating a family legacy that is about more than money.
For many it becomes the defining activity of a second career. Almost all those who give substantial amounts of money also give substantial amounts of time.
What do they support?
Philanthropists give primarily to the causes they are personally passionate about, and where they feel they can make a difference. There are many similarities in the causes supported by established and emerging donors, with two key exceptions. First, ‘religious organizations and causes’ is the fifth most popular cause (by incidence) for established donors but by far the least popular area for emerging donors. Second, ‘higher education’ attracts almost double the incidence of donations among established donors yet around the same value is given by emerging donors to this cause, as a result of a smaller number of larger value gifts. Health causes received more than twice as much in total donation amount from emerging donors, who also put more into ‘charitable foundations’ – though but we believe this is because the more established donors had already settled their foundations.
Donors also give to charities and projects proposed by family members and respected peers, even (in some cases) when it is not one of their priority areas. Donations made in these circumstances tend to be one-off and smaller than gifts to a preferred organization, though a ‘nominal’ or ‘token’ gift from a rich person may still be worth £5,000 or more. Many fundraisers misinterpret gifts at this level as indicative of serious interest and potential. Almost all interviewees (90%) define a major donation as £10,000 or above, and 65% believe the bar should be set at £50,000 or more. Linked to this, a third of our respondents do not expect access to a charity’s leadership until and unless they have given a donation at this level, but a quarter expect access with smaller gifts. Many do not think that a donation alone should guarantee access, but they would expect to be listened to.
A matter of concern is that, along with such access, familiarity does not always breed respect. Many donors perceive people working in charities as good-hearted but inefficient. Rich people need more proof that charities can and will make best use of donations, otherwise they will bypass them and set up their own delivery mechanisms. As they see it, well-run charities should be efficient and collect evidence on impact for their own management purposes, not just to please donors. However, donors should be aware of the inherent inconsistency in complaining about high administration costs while simultaneously demanding super-efficiency and outstanding management.
A more strategic approach
Over the last decade donors have become more strategic in their giving and increasingly want to see the impact of their support. This goes beyond outputs such as the number of people served, to address the longer-term outcomes and impacts on beneficiaries, such as improved health or self-esteem. We are seeing more strategic and more engaged donors – from giving to strategic engagement via venture philanthropy – and matching expertise and the need for business skills. We see long-term support for an organization that is often not simply financial but also includes using the expertise of the donor or his or her networks to build the capacity of the recipient organization, the direct involvement of the donor in management and project design through taking a seat on the board, and clear measures of performance against which to judge the investment.
At the same time, donors are working out their attitudes towards the state and the idea that government should provide for all social care, education and health services, and that any private funding would ‘let government off the hook’. They are defining new roles for private donations and investment within public services. This can be combined with new instruments such as social impact bonds.
Giving through a personal foundation (which enables planned, long-term, tax-efficient giving) has risen from around half of the sample in 2002 to nearly three-quarters in 2012. We argue that this is evidence of a more strategic approach.
Foundations are often established as permanent grantmaking bodies that distribute the interest while retaining the principal lump sum to exist in perpetuity. However, an alternative ‘spend-out’ model, which involves distributing both the capital and interest within a set period, is becoming increasingly popular. Over a quarter of the emerging donors we spoke to who have a foundation have decided to spend out (compared with 16% of established donors), and a further 30% are actively considering it (again compared with 16% of established donors). Most of the remaining donors have a ‘flow-through’ model (with no initial lump sum of capital, but rather large sums deposited from time to time that are distributed within a few years) so the question does not apply.
Given the importance of peer advocacy it is not surprising that most (85%) of the donors we surveyed have been involved in asking for money for the charities that they support. This question generated one of the sharpest distinctions between the established and emerging donors. Almost every established donor (97%) has at some point asked others to make a donation to a cause, but a quarter (26%) of the emerging group have never done so.
One finding that surprised us is that despite giving often being viewed as a solo activity, almost half (44%) the people we surveyed are part of a regular or occasional group of donors, with less than a third (30%) having no intention of giving this way. Giving collaboratively may be one of the ‘best-kept secrets’ of the rich donor community.
How the giving environment has changed
Those who do give do so in a very different environment from ten years ago. There is a concentration of resources within larger charities. Between 1999 and 2012, the income of charities whose annual income exceeds £10 million has grown from just over £10 billion (43% of the total) to £33.5 billion (over 57%). [1] Much of this increase is due to increased contracting with the state, and there have been some questions about the independence of charities because of their growing reliance on government funding.
As donors became more strategic in their approach, and began to demand increased accountability and transparency from charities, new tools for measuring social returns as well as financial returns needed to be developed. A number of organizations, some of which are themselves charities, emerged to research and address these questions and information needs.
There has also been a growth in the number of wealth managers and advisers in banks and law firms, as well as independent advisory firms and community foundations, which have become far more engaged with the potential and actual philanthropic interests of their clients. Nevertheless, although interviewees do refer to obtaining guidance from a range of advisers, more than half have not sought professional advice. They prefer to involve their partners, trustees and children, or to speak to other donors. While almost three-quarters of established donors are in this category, it includes only 40% of emerging donors, so it would appear that the greater availability of advice is prompting and responding to greater interest from younger donors and potential donors. A third of emerging donors report that they have sought advice and that it has influenced their giving plans – more than twice the number of established donors. However, donors continue to report that they have not found adequate advice or have chosen not to avail themselves of it. In addition, only a minority of interviewees (28% overall and just 15% of the emerging donors) think that fundraisers have become better at explaining tax breaks and helping with planned giving.
Government support for philanthropy
In addition to government investment in building academic research capacity, a number of other government-funded schemes to promote philanthropy have emerged over the past 10-15 years. An early example was the Giving Campaign, followed by the launch in 2008 of what proved to be a successful matched funding scheme for the higher education sector. [2] More recently, September 2011 saw the announcement of the £100 million Catalyst scheme to boost private giving to cultural and heritage organizations. It is too early to report on its impact but we note the positive responses by some of those interviewed, especially the emerging donors, to the concept of matched funding, because of the idea of a ‘deal’.
Only a third (32%) of all the donors we spoke to cite tax reliefs on charitable donations as an incentive behind their giving decisions, with matched funding schemes seen as a better incentive. Nevertheless the way the tax system encourages philanthropy is a key element in the relationship between government and charitable giving. As we discuss, rich donors acknowledge that many important issues remain to be addressed, including donors’ ability to redirect tax to their favoured causes, or ‘hypothecation’.
Along with the encouragement of philanthropy has come the realization that those who respond should be recognized and celebrated, whether by government, the private sector or charitable entities. The establishment of an honours committee focused on rewarding philanthropic achievement and the growing number of awards for philanthropists, family businesses and indeed professional advisers, including the Beacon awards, the Spears award for philanthropy adviser of the year and the annual STEP awards for philanthropy team of the year, represents another strand that is raising awareness of philanthropy.
Encouragingly, two-thirds of our donor interviewees feel that UK public opinion in 2012 was more positive than in 2002, with emerging donors slightly more concerned about hostile public opinion. Increased negativity is thought to be related to suspicions about donors’ motives and disquiet at donors’ ability to ‘hypothecate’ tax they would otherwise have paid into a pot available for general spending, rather than to the donors’ pet causes. Over half (55%) feel the political climate for philanthropy in the UK has improved, while just 10% feel the opposite.
A simple truth about giving
Most people we spoke to feel their giving is more strategic now than 10 years ago; they are more proactive, planning ahead and thinking on a larger scale. We found an increased willingness to seek professional philanthropy advice, especially among younger donors, who are also more keen to consult their children and involve them in decisions. And we found a general desire to learn how to do it better. Donors re-visit and re-evaluate their charitable affairs because the more effective their giving is, the more pleasure they get out of it.
And that’s the point we want to end on. Despite all the complexities we found a simple truth: that being philanthropic might leave people worse off financially but it almost always enriches their lives.
1 http://www.charitycommission.gov.uk/about-charities/sector-facts-and-figures/
Beth Breeze is director of the Centre for Philanthropy at the University of Kent. She researched and wrote the Coutts Million Pound Donor reports from 2008 to 2012. Email b.breeze@kent.ac.uk
Theresa Lloyd advises a range of organizations on strategy and fundraising, and is the author of Why Rich People Give (2004) and Cultural Giving (2006). Email theresa@theresalloyd.co.uk
For more information
http://www.richerlives.org
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