Increase in Charity Funding: Ultra-wealthy Individuals Contribute More to Philanthropy
In recent years, donations to charity have been on the rise. However, a new study reveals that the pool of donors is actually shrinking, as philanthropy becomes increasingly concentrated among a small group of ultra-wealthy mega-donors. According to a report from Altrata, individuals with a net worth of $30 million or more now account for a staggering 38% of all individual giving worldwide. This means that just 400,000 people are responsible for more than one-third of the world’s charity.
The concentration of philanthropy becomes even more extreme when looking at billionaires. The world’s 3,200 billionaires, who make up just 0.00004% of the global population, contribute 8% of individual philanthropy. While the giving by these ultra-wealthy individuals is undoubtedly positive, there is an ongoing debate about whether they are giving enough. The recent annual letter from Gates Foundation CEO Mark Suzman highlights the need for the wealthy to step up their giving.
Despite the concentration of giving among the ultra-wealthy, overall charitable contributions continue to grow. Altrata’s research shows that the level of giving from ultra-high-net-worth individuals in 2022 was 25% higher than in 2018, even during a down year for financial markets. North Americans remain the most philanthropic group globally, accounting for nearly half of global giving from the ultra-wealthy.
However, this shift towards a top-heavy landscape for philanthropy poses challenges for wealth advisors and nonprofits. Nonprofits, which have traditionally relied on a broad range of donors, now must depend on a smaller group of super-donors who are already inundated with requests. Charitable causes will now rise and fall depending on the interests and goals of this small group of mega-funders. Additionally, overall giving will become more volatile as it is influenced by stock prices, which drive the benevolence of billionaires and the ultra-wealthy.
Amir Pasic, dean of the Indiana University Lilly Family School of Philanthropy, suggests that nonprofits are reevaluating their fundraising strategies in light of this “dollars up, donors down” phenomenon. Many organizations are focusing more on major gifts and finding ways to access wealthy donors and foundations. Simultaneously, some nonprofits are trying to tap into a larger community of smaller, younger donors by leveraging technology and implementing more creative outreach programs. There is a growing concern that by solely focusing on the top of the pyramid, nonprofits may be neglecting the importance of reaching out to potential future donors.
Altrata’s research also sheds light on the demographics and preferences of today’s ultra-wealthy mega-donors. The majority of these donors are male, over the age of 70, and hold a higher share of liquid wealth compared to the broader ultra-high-net-worth population. However, women are emerging as a rising force in philanthropy. While they make up only 11% of the ultra-high-net-worth population, they account for 22% of the larger givers.
Furthermore, today’s ultra-wealthy donors prefer to give through private foundations and donor-advised funds, which provide them with greater control over their giving. The assets held in private foundations have more than doubled since 2005, totaling over $1.2 trillion according to Federal Reserve data. Nearly 1 in 5 ultra-high-net-worth individuals has a private foundation, and 30% of those worth $100 million or more have one.
The giving priorities of the ultra-wealthy also differ from those of the broader public, resulting in more money flowing towards causes that are of particular interest to them. According to Altrata, education is the top charitable cause for ultra-wealthy donors, with 54% of their giving going towards this sector. Arts and culture follow closely behind at 32%, while health care and medical research, social services, and the environment/conservation/animals receive 28%, 23%, and 14% respectively.
Interestingly, religion, which is the top charitable cause for Americans as a whole, does not rank in the top seven causes for the ultra-wealthy. However, Altrata notes that giving to religion often happens anonymously and in a disparate manner, so the actual figures may be higher than reported.
In conclusion, the increase in charity funding is largely driven by the generosity of ultra-wealthy individuals. While their contributions are significant, the concentration of philanthropy among a small group poses challenges for nonprofits and wealth advisors. These organizations must adapt to a top-heavy landscape and find ways to access major gifts while also engaging with a larger community of potential future donors. As philanthropy continues to evolve, it is crucial to address the changing dynamics and ensure that charitable causes receive necessary support from a diverse range of donors.
