Philanthropy & Funding

Closing the Divide

With the ever-widening wealth gap, we as a society need to break out of the traditional philanthropic mold.

In this election year we’ve heard plenty about the 47 percent, the 1 percent, and the 99 percent. The expanding wealth gap has become a major election issue, as it should be. Decisions in the coming years about taxes, access to education, jobs, and workers’ rights are intertwined with reversing the growing wealth imbalance.

Undoubtedly the most effective approach to narrowing the wealth gap is political. But is there a role that individual donors can play? There certainly is, but it requires a break from traditional philanthropy.

Let’s imagine a wealthy donor—we’ll call her Mary—who wants very much to help kids from low-income backgrounds have educational opportunities.

Mary remembers her own scholarship to a prestigious university and how that paved the way for her successful career. She wants to give back. And, rather naturally, she puts in a call to the development department at her alma mater. The major gifts officer urges Mary to establish a $1 million endowment in her name at the university. That will spill off about $45,000 a year in scholarship funds, which will underwrite the cost of one student to attend the school each year.

While Mary likes the idea of having her name immortalized at the university she cares so much about, she also decides to consider other, less-traditional options. A million dollars is a lot of money. And helping one student at a time isn’t exactly going to scale, she realizes. She looks for ways to direct those funds to provide real opportunity for more young people.

Mary decides to focus less on the end provider—the university—and focus more on the students and their families and communities.

One solution she comes up with: supporting early childhood programs. Instead of popping a million dollars into the endowment of her alma mater, Mary could give $100,000 a year for ten years to a high-quality nonprofit childcare center to provide scholarships for children from low-wealth families. Instead of the impact being deferred (as all endowment gifts are) and benefitting only one student at a time, as is the case at the university, her gift could enable dozens of children each year to get a quality learning experience at a critical point in their lives. And an annual gift of $100,000 would be a game-changer at nearly any childcare center. (By contrast, a million-dollar gift to a major university barely causes a ripple.)

Then Mary learns that there are now hundreds of organizations around the country providing matched savings accounts—as demonstrated by the more than 1,200 practitioners at last week’s biennial Assets Learning Conference in Washington, DC, sponsored by the Corporation for Enterprise Development (CFED). These programs encourage families with low incomes to save for education, or the purchase of a home, or a business—all assets that will help provide them with long-term economic traction. And each of these programs provides some sort of a match as an incentive to the families.

Mary learns that students with savings accounts are many times more likely to enter college—even if the total in the account is relatively small. Mary imagines the impact if, working through one of these organizations, she were use her million dollars to provide a $2,500 match to 400 students, thereby allowing a broad swath of kids from low-wealth families to attend college. (They may go to a community college, of course, and not an Ivy League school, so a little bit of investment will go a long way.)

And Mary finds out that there’s now there’s a new way for donors to contribute to matched savings programs through a project called the 1:1 Fund. Though still in its early stages, the 1:1 Fund plans to offer donors the chance to invest in the future of American kids in much the way Kiva has democratized investing in microfinance around the world.

Donors like Mary are drawn by nostalgia and convention to consider creating endowed funds at their universities and prep schools. But if they stop to think about it, they will realize that they can affect several hundred times more students from low-wealth families by giving to early childhood or matched savings programs. With the ever-widening wealth gap, we as a society need to break out of the traditional philanthropic mold. I’m hoping that in the coming years dozens, then hundreds, then tens of thousands of donors change course, jettison prestige, and opt for impact.

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  • BY Ellen Koenig

    ON October 18, 2012 12:27 PM

    Great example of breaking out of the old endowment mold and focusing on outcomes, which we are all encouraged to do. The more donors who think this way will create a tipping point towards seeing philanthropy at work NOW, rather than after you’re dead and gone….which after all, is a lot more fun.

    Great article!

  • Excellent example of how a donor can make a huge impact on the lives of many. We are encouraged to focus on donor-centered fund raising efforts, putting the donor upfront in our messaging and downplaying the institutional framework. This thinking is definitely donor-centric. You are so correct, $1 mill doesn’t go very far in serving community need—but it does advance the institution.

  • BY Jamie K Forbes

    ON October 18, 2012 01:38 PM

    Not only should this perspective resonate for those who want to maximize their impact, it also should satisfy our population’s increasing desire for instant gratification that technology encourages.  While college and other institutions’ endowments may suffer, these examples provide compelling reasons to shift away from the long-held model of giving.

  • Joseph M Rogers's avatar

    BY Joseph M Rogers

    ON October 18, 2012 02:24 PM

    It’s such an obviously better way to have a positive impact on the lives of a greater number of people, compounded over a longer time frame. Especially so if your prime purpose in giving is to help others less fortunate , not just to get your name in lights for all to see. 

    That is a the highest order of philanthropy. 

  • BY Daniel Bassill

    ON October 18, 2012 03:23 PM

    In other FSG articles the topic of “collective impact” is described in an on-going set of articles. I’ve commented before about how intermediaries can build “knowledge libraries” showing the entire universe of social benefit organizations working in a large geographic area for a common purpose, such as helping any youth born in poverty today be starting a job-career by his/her mid-twenties. That would take a lot of different organizations, just like it takes a lot of different types of talent to build a new building on a major university campus.  And, it would need some sort of accelerate,such as high quality advertising, to keep resources flowing to all of those organizations for many years.

    If we all saw a benefit to an advertising campaign that motivated dozens of people like Mary to devote major gifts to intermediary organizations who were collecting information and leading advertising and talent development efforts, intending to distribute resources continually to all of those involved in this shared purpose, we could combine our efforts over the next few years to inspire people like Mary to make such gifts. 

    I see this as much larger than supporting the United Way or the current collective efforts that are currently receiving high profiles. Information collection should attempt to create maps of metropolitan areas, with indicator overlays showing where poverty is concentrated and where violence, health disparities, education inequities, etc. are concentrated. Overlays to this should attempt to collect web site links and contact information for ALL of the organizations who focus on the same issue, not just those who are chosen by the current decision makers.  That way the work intermediaries do can help drive ideas, talent and operating dollars on a consistent basis to every organization so they each have the ability to constantly improve and every neighborhood can have a world-class support system helping kids overcome challenges of poverty.

    I’m sure there would be many who would object to this, but those who think it’s a good idea should begin to connect and try to find people like Mary who will support our collective efforts.

  • Nancy Dorner's avatar

    BY Nancy Dorner

    ON October 19, 2012 12:27 PM

    A very well written example of how thinking “out of the box” can really affect more lives at critical developmental stages.

    Of course, donors who go that route would have to be focused on truly doing the greater good and not having their names enshrined in institutions.

  • BY Marilyn Kellogg

    ON October 25, 2012 05:01 AM

    It sounds like there needs to be a mechanism created to educate donors on new ways of giving considering our current economic conditions.  I don’t think there needs to be a new layer to accomplish this, but maybe existing non-profit advising organizations can find ways to inform donors of better ways to apply their financial gifts.

    Great article.  I hope this sort of thinking takes hold.

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