High Net Worth Philanthropy - US Study

Charitable giving by high net worth households to Not for Profit organisations accounts for about two-thirds of all individual giving and about half of all charitable giving in the U.S.

Through an ongoing research partnership with the Center on Philanthropy at Indiana University, which began in 2006, the 2010 Bank of America Merrill Lynch Study of High Net Worth Philanthropy reveals significant shifts as well as consistent trends in the attitudes and giving behaviours of wealthy donors.

The research includes which Not for Profit sectors they support, how they direct their largest gifts, what motivates them to give or to discontinue support for a NFP organization, where and how often they volunteer, and who they turn to for advice about philanthropy. 

The latest study also examines new areas of research, including how charitable decisions are made within households, investment risk tolerance as it pertains to donors’ philanthropic assets, and how wealthy individuals respond to disaster relief.

The research reflects the responses of more than 800 households randomly surveyed in affluent neighbourhoods across the U.S. Households in the sample have an income of greater than $200,000 and/or a net worth of at least $1,000,000, excluding the value of their primary residence. The average wealth of respondents was more than $10 million, and half of all respondents had a net worth between $3 million and $20 million.

The study found that there is a strong commitment to Not for Profits by wealth individuals despite giving levels declining.

According to the study, high net worth households continued to support charitable organisations at levels that were remarkably consistent with those seen in 2005 and 2007, with 98 percent of wealthy households donating to charitable causes in 2009. 

High net worth households also reported a continued strong commitment to supporting the same organisations or causes year after year (66 percent). Although 35 percent stopped giving to at least one organisation in 2009, this was consistent with 2007 results – an indication that donors were no less committed to the organisations they supported during the recent recession than they were before it began. 

Giving as a percentage of income also remained somewhat steady in 2009 compared to the previous study, with wealthy donors contributing just over 9 percent of their income to charitable causes last year, compared to approximately 11 percent in 2007.

Gillian Howell, national private philanthropy executive at Bank of America Merrill Lynch says wealthy individuals and families continue to be a driving force behind charitable giving in the US, supporting a wide array of organisations and issues.

While commitment to continuing support for NFPs remained high, wealthy households appear to be making trade-offs in the dollar amounts that they give to charity, with the overall average gift amounts in this study decreasing by 35 percent from 2007, after adjusting for inflation. Several sectors did see increases between 4 and 21 percent in average amounts given by wealthy donors, including the arts, environment/animal care and international giving.

Although average giving amounts to health and education declined in 2009, they remain among the top NFP sectors supported by wealthy households. Consistent with the two previous studies, between 70 and 85 percent of high net worth households supported health, religion, the arts, education and basic needs. The percentage of households that gave to basic human needs, such as food and shelter, increased from 75 percent in 2005 to 85 percent in 2009.

More than 55 percent of high net worth households gave their largest gift in 2009 to fund general operations at NFP organisations. Significantly fewer households made their largest gift to support the growth of an organisation (24 percent), for capital campaigns (14 percent) and for the long-term needs of the organisation (11 percent) compared to 2007.

Volunteering remains a significant part of the philanthropic efforts of wealthy individuals. Since 2007, high net worth households have been giving more of their time and talent to the organizations and causes they value. Nearly 79 percent of high net worth individuals volunteered in 2009, and the percentage who volunteered more than 200 hours a year rose significantly, from 27 percent in 2007 to 39 percent in 2009. The study also found that the more high net worth individuals volunteered, the more they gave. 

For example, non-volunteers donated $46,414 on average in 2009, while those who volunteered more than 200 hours donated $75,662 to charity last year.

When asked about their charitable behaviour, high net worth households reported that their top motivations for giving were: 

• Being moved by how their gift can make a difference (72 percent).
• Feeling financially secure (71 percent).
• Giving to an organization that will use their donation efficiently (71 percent).
• Supporting the same causes or organizations annually (66 percent).

In 2009, 35 percent of households stopped giving to at least one organisation, and 27 percent stopped giving to at least two organisations that they previously supported. The top four reasons cited for why donors stopped giving to a particular charity included: 

• Too frequent solicitation/organisation asked for inappropriate amount (59 percent).
• Decided to support other causes (34 percent).
• Household circumstances changed (e.g., financial, relocation, employment) (29 percent).
• Organization changed leadership or activities (29 percent).

An area in which wealthy households do not make trade-offs is when giving to disaster relief, such as the earthquakes in Haiti and Chile, Hurricane Katrina, tsunamis, or other events. This new area of research found that the majority of wealthy households (83 percent) sometimes or usually make a donation in response to disasters. 

When households made a donation, more than 92 percent gave to disaster relief in addition to their regular charitable giving.

A combined 95 percent of wealthy households have some or a great deal of confidence in Not for Profit organisations’ ability to solve societal or global problems. In a continuing trend from the previous study, donors also have high expectations of charitable organizations, listing the following factors among those most important when determining which to support:

• Demonstrate sound business and operational practices (87 percent).
• Acknowledge contributions, including sending receipts (85 percent).
• Spend an appropriate amount on overhead (80 percent).
• Do not distribute personal information (80 percent).

For the first time, this study examined how charitable decisions within high net worth households are made. The findings suggest that among wealthy couples who make charitable donations (those who are married and/or living with a partner), both giving partners are likely to be involved in decision-making: 

• 41 percent confer with their partner or spouse and then make joint decisions about charitable giving.
• 26 percent confer but then usually one person ultimately makes the charitable giving decisions for the household.
• 16 percent reported that giving decisions were made by a single decision maker without conferring with anyone else.
• 15 percent of couples report that each partner typically makes independent decisions about how to allocate their giving.

The latest study once again looked at the transmission of philanthropic values to children or other younger relatives. In this study, the children of wealthy households are generally adults with an average age of 31 years old. The vast majority (85 percent) of households instruct their children and/or younger relatives about philanthropy. Respondents also noted that younger individuals learn about the value of giving from religious institutions (45 percent), nonprofits (21 percent) and through their own personal efforts (19 percent).

More than 16 percent of wealthy households gave to giving vehicles such as private foundations, donor-advised funds and charitable trusts in 2009, and the average giving amount to these vehicles increased by 21 percent, from $62,680 in 2007 to $75,867 in 2009.

In another new area of research, the latest study examined high net worth households’ levels of risk tolerance among both their personal and philanthropic investments (e.g., private foundations, donor-advised funds and charitable trusts). The results show that, while 35 percent of wealthy households cited a willingness to tolerate above-average or substantial risk in their personal investments, only 23 percent reported these high levels of risk tolerance when it comes to their philanthropic investments. 

Furthermore, while only 10 percent of households reported they were not willing to take any risk in their personal investing, one quarter (26 percent) cite being completely risk averse with their philanthropic investments.

Finally, this year’s study continued to examine trends in charitable advice sought by wealthy donors. Consistent with trends observed between the 2006 and 2008 studies, the 2010 study witnessed notable increases in donors’ use of accountants (68 percent) and financial/wealth advisors (39 percent) to help them make charitable giving decisions. High net worth households also consulted with Not for Profit personnel (24 percent) in their charitable decisions around philanthropic mission definition and creation. More than 90 percent of wealthy households initiated the discussions with their advisor, and 85 percent were satisfied with the advice given.

The full 75-page 2010 study can be downloaded at http://www.philanthropy.iupui.edu/Research/docs/2010BAML_HighNetWorthPhilanthropy.pdf