(Illustration by Adam McCauley)
Each year, Americans give more than $400 billion to charitable organizations and causes. Donors choose the recipients of their largesse in different ways. Some of them give according to their passion, while others target nonprofits that maximize the effectiveness of their donations. Some give altruistically, others for the warm glow they feel from donating or for the benefits they receive in return.
Nonprofits now have access to rich information about charitable giving with just a mouse click. The more ambitious organizations are using it to navigate the complex relationship they have with a new generation of donors that relies increasingly on metrics, as well as the economic and social contexts in which their donors operate.
Pamela Paxton, the Linda K. George and John Wilson Professor of Sociology at The University of Texas at Austin, wanted to understand how trends in giving and in soliciting gifts interact. In “What Influences Charitable Giving?,” her contribution to the new third edition of The Nonprofit Sector: A Research Handbook, she explores the latest data on giving, the ways that wealthy donors’ priorities differ from nonwealthy donors’, and the economy between donors and nonprofits—what she calls the supply and demand sides of giving.
“A charitable gift is fundamentally a relationship between a donor and a nonprofit,” Paxton writes. This relationship is built on the traits and motivations of individual donors; the characteristics and activities of nonprofits; and the social, economic, and political forces that influence giving decisions. While donations are more significant for some nonprofits than for others, knowing how to attract them can be central to an organization’s sustainability.
Wealthy and non-wealthy people give to different kinds of organizations. Households higher on the income ladder tend to give progressively smaller shares to religion, instead favoring education (especially higher education), the arts, and health organizations. These preferences appear in donor-advised funds as well: Only 11 percent of donations from these funds go to religious organizations, while 29 percent go to education.
The traits and motivations of individual donors—the supply side—can range from seeking a private benefit, such as VIP tickets or the name of a building, to social acclaim, to altruism—the desire to increase others’ well-being—to a sense of self-satisfaction. Participation in voluntary associations or religious groups is associated with higher rates of charitable giving, not just because of social pressure but also due to a greater awareness of charitable opportunities. Group memberships, such as alumni associations, increase the likelihood of being solicited. Just as important are the encouragement provided by government in the form of tax deductions and the state of the economy.
As for the demand side—that is, nonprofits that actively work to attract donations and retain donors—the Internal Revenue Service requires that they file a Form 990, which contains detailed financial information, governance, compliance, and employee and volunteer figures. Close study of these forms reveals clear relationships between the characteristics of a nonprofit and its donations—for instance, notably high executive compensation leads to decreased growth in donations. Similarly, a low ratio of program expenses to total expenses denotes poor efficiency and eventually suppresses donations. Savvy nonprofits have refined their fundraising strategies in light of the data derived from such 990 analyses.
Nonprofits also have to adjust to a recent donor trend called, variously, effective altruism, outcomes-oriented, or new philanthropy. Lumped together, these movements focus on the return on investment—that is, how much social good a gift produces from the money outlaid. To attract such discriminating donors, sophisticated nonprofits monetize their charitable activities. For example, the Robin Hood Foundation has calculated the lifetime value of a high school degree at $190,000, and of each additional year of college at $40,000. Sophisticated donors can then compare the monetized results of Robin Hood’s job coaching activities with educational activities undertaken by other nonprofits.
While rigorous effective altruism has its adherents, it remains a small part of charitable giving. Because research shows that donors generally remain drawn to causes they are passionate about, Paxton suggests that ROI evangelists might consider combining the two approaches: “With regard to effective altruism, donor advisors who work with donors to choose among causes have more leeway to suggest choices based on tenets of effective altruism, across causes.”
“Paxton pulls together a lot of the most recent and interesting research on philanthropy into a grand synthesis,” says Peter Frumkin, the Mindy and Andrew Heyer Chair in Social Policy and faculty director of the Center for Social Impact Strategy at the University of Pennsylvania. “The only thing that Paxton’s fine summary of the knowledge base leaves out are the big normative questions. Readers will have to wrestle with the tougher philosophical and political questions that philanthropy raises on their own.”
Pamela Paxton, “What Influences Charitable Giving?,” from The Nonprofit Sector: A Research Handbook, Third Edition, Walter W. Powell and Patricia Bromley, eds., Stanford, CA: Stanford University Press, 2020.
Read more stories by Marilyn Harris.