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The importance of giving smartly during the holidays
By Tom Parisi
NIU Media and Public Relations
It’s hard to underestimate the importance of the holiday season for many nonprofit organizations.
About 70 percent of Americans donate money to charitable causes. And according to the Giving USA Foundation, individuals account for 81 percent of all revenue to nonprofit organizations, the largest source by far.
“For many nonprofits, the bulk of their individual donations comes during the holiday season,” said Northern Illinois University’s (NIU) Alicia Schatteman, a professor of nonprofit management who teaches courses on philanthropy and was once a nonprofit executive director herself.
“December is, by far, the most generous month of the year,” Schatteman said. “It’s a time when people are feeling more charitable and are looking at what they have left in terms of discretionary spending. It’s also at the end of the income-tax year, so people are thinking about tax deductions before Dec. 31.”
NIU Today asked Schatteman to discuss the ins and outs of giving during the giving season. What follows is a Q-and-A.
Q: Why do people give?
A: First and foremost, it’s recognition of a need. Either the mission of the organization resonates with the donor, or the donor has a relationship with the cause or the organization. The challenge for nonprofits is to build on that recognition over time. The nonprofit has to know who in their community recognizes the need and solicit their support. It also has to know when to ask for support.
Q: What types of organizations are most reliant on individual donations?
A: The percentage of income from donations changes depending on the type of nonprofit. For instance, human service organizations get a substantial portion of their income from government contracts. On the other hand, individual donations are the bread and butter for many arts groups and smaller community-based organizations.
Q: Has the economy affected annual giving?
A: Absolutely. When the downturn started in 2008, nonprofits felt it deeply. It continued through 2009, although giving rebounded in 2010 and 2011. I would say it’s still not back to pre-recession levels, but we’re headed in the right direction. In some ways, the challenge was good for nonprofits because it forced them to reassess things. They streamlined their organizations, stretched their budgets and are coming out of the recession a little smarter.
Charitable giving is cyclical, contracting during hard times and expanding as incomes rise. Overall, total charitable giving adjusted for inflation has risen since the 1960s, but we have also seen large increases in the number of nonprofit organizations (now nearing 2 million). However, giving as a percent of gross domestic product (GDP) has remained relatively flat over the same time period, about 2 percent.
Q: How much does the average American household give to charity in a given year?
A: According to those who claim charitable deductions in their IRS tax returns, 27.3 percent of households donate to charity. The median contribution is $2,564.
Q: Are there certain populations that are more charitable?
A: Overall, Americans give about 4.7 percent of their income to charity. Middle-class Americans give a far bigger share of their discretionary income to charities than the rich. Households that earn $50,000 to $75,000 give an average of 7.6 percent of their discretionary income to charity, compared with an average of 4.2 percent for people who make $100,000 or more. Also, regions of the country that are more religious are more generous than other regions. However, if giving to religion is removed, other regions then become more generous.
Q: What distinct role do women play in philanthropy?
A: The incomes of women are increasing, so that puts them in a better position to give than in the past. They also tend to have more inherited wealth, since women tend to outlive their husbands.
Q: How are men and women different when it comes to philanthropy?
A: Women often want to engage with an organization, so they are more likely to be volunteers, as well as donors. Both men and women are interested in outcomes and the performance of an organization, but women really want to know what’s behind the numbers — or how a nonprofit is impacting real people and real lives. Men tend to use a rational efficiency-based model when giving.
Q: Are men or women generally more charitable?
A: Women are more charitable in the sense that a higher percentage of women make charitable contributions, but gifts from men tend to be larger.
Q: How can you ensure that your donation is going to a worthy organization?
A: The more information that an organization discloses about its financial operations — and the easier it is to access that information — the better. Most nonprofits must fill out an IRS Form 990 for federally tax-exempt organizations, and the form contains information about programs and finances. Some nonprofits make this information available online, or it should be easily available to donors who request the information.
Donors can also look at an organization’s annual report, and it should be easy to understand. Good nonprofits will tell you what they do; great nonprofits will show you what kind of impact they have on their community.
Q: What are some other red flags for donors?
A: If you see assets shrinking, that could be a red flag. But lots of organizations had budget trouble during the recession. That’s OK if things appear to be headed in the right direction now. The other potential concern is debt. Nonprofits usually don’t go into debt. If you see that on an asset sheet, you want to make sure the organization provides sound reasoning.
Q: What are some new trends in giving?
A: One area that has taken off is mobile giving — or giving small amounts to a charity or cause via your mobile phone. That is absolutely increasing. Although the contributions are small, they reach a broad base.
Online giving still only accounts for about 10 percent of all giving, but it is growing. Most nonprofits now have the ability to accept online donations.
But it’s not enough for them to have supporters who used to write checks donate online, because the organizations often incur transaction fees. The challenge is to increase the number of donors. We have seen the dollar amounts increase over time, with the average annual gift online being $75 to $100 per individual.
Another trend is increasing calls for transparency and government regulation of charitable organizations, as well as pressure to reduce charitable tax deductions for upper incomes. This is certainly part of the “fiscal cliff” debate right now, and it is uncertain how any changes will directly affect nonprofit organizations.
Q: What can we teach children about being charitable?
A: When we look at why people give their time and volunteer, it’s usually because their parents exposed them to that behavior at a very young age, often through church or a faith community. It really sticks with young people. For many of my students, that exposure at a young age sparked their desire to work in the nonprofit sector.
Alicia Schatteman holds a joint appointment with the NIU Division of Public Administration and NIU Center for Non-Governmental Organization Leadership and Development (NGOLD), established as a resource for excellence in the study, research and practice of nonprofit organizations.
From the Dec. 5-11, 2012, issue