Read Triple threat part 1: Election year
Read Triple threat Part 2: COVID-19
In the first installment of the triple threat blog series, we reviewed fundraising during a U.S. Presidential election and discussed how the current political climate may impact year-end results. In the second installment, we looked at the lasting impacts of the COVID-19 crisis and offered suggestions for adapting fundraising strategy to the new philanthropic reality.
In this third and final chapter of our year-end fundraising series, we endeavor to analyze the current economic landscape and subsequent implications for the charitable sector. While the effects of the 2020 economy on year-end giving are difficult to predict, we will utilize clues from past recessions to offer an outlook for 2021 and beyond.
Economic downturn or recession?
Even more so than the U.S. election or the COVID-19 crisis, the impacts of the economic downturn in 2020 have been difficult quantify, mystifying even the most experienced economists. While it is widely accepted that the U.S. economy is, in fact, experiencing an economic downturn, experts do not agree on whether or not we are officially in a recession, and therefore, opinions vary widely on what recovery will look like. Recent comments by Federal Reserve chairman, Jerome Powell, states that the U.S. is actually not in a recession and that recovery is moving more quickly than expected, even with unemployment three times higher than before the pandemic. And he is correct: A recession requires a fall in gross domestic product (GDP) for two consecutive quarters, which has not yet occurred due to rollbacks of business operation restrictions in quarter three and massive injections of cash from the Federal Reserve.
Although there is not officially a “recession,” the current economic pain is very real. It is estimated that real unemployment (accounting for furloughs and those who have stopped looking for work) is close to 11%, the highest since 1940, and the Congressional Budget Office forecasts that GDP won’t rebound to pre-pandemic levels until late 2022. Peoples’ day-to-day lives are being affected – and so, it’s possible that we may see impacts on end-of-year giving trends, as well.
The economy and charitable giving
During the Great Recession in 2008, 8.8 million jobs were lost, GDP fell by over 4% and home prices fell by 30%. Despite the resiliency of Americans during tough economic times, this crisis’ deep and widespread impact left many people giving less.
Giving decreased by 3.7% in 2008, and then by 8.3% in 2009. Much of this drop can be attributed to declines in giving by the wealthiest Americans. As reported by the New York Times, from 2006 to 2014, “… the share of income donated to charity by Americans who earned $200,000 or more decreased by 4.6%.” It took until 2014 for giving to bounce back from the recession, reaching $358 billion in total charitable giving, surpassing the pre-recession high.
Though there are similarities between the Great Recession and our current downturn, one of the factors that sets 2020’s economic strife apart is the performance of the U.S. stock market.
All major recessions in the twentieth century have been defined by a significant loss in stock value. During the 2008 recession, U.S. stocks lost 56% of their value from peak to trough. Conversely, in 2020, the Dow Industrial Average and the S&P 500 index are actually up by 5% and 13% respectively, and the NASDAQ is up an eye-popping 40%.
Investing revenues in 2020 have reached all-time highs, while unemployment reached a historic peak of 14.7% in April. However, this recovery in employment has not matched historical seasonal increases and has ultimately fallen short of a true labor recovery, with a potential cliff approaching after the holiday boost to consumer demand. The dueling narratives on the stock and job markets has widened the already staggering inequality and left the nonprofit sector stretched to its limit in order to bridge the divide.
Overall, for the last 64 years, total giving has grown at an average annual rate of 3.3% adjusted for inflation. During years with economic growth, average giving has increased by 4.7%. During the years marked by economic downturns, average giving has actually decreased by 0.5%. The Great Recession was an extreme example, with total giving dropping by 7.2% in 2008, and then decreasing by another 8% in 2009.
There’s a strong relationship between how much money Americans give to charity and their after-tax income. There is a similar correlation between giving and the stock market’s performance. That means people give more when they feel that they have money to spare.
On the one hand, bullish performance of the stock market is welcome news for high net worth individuals, philanthropists and foundations with large endowments, as investment revenues have increased overall assets. However, the perception of a downturn and the uncertainty created by the U.S. elections and COVID-19 crisis have affected the psyche of these donors: giving has reached an all-time high for pandemic-related causes but has decreased precipitously for others.
The question remains, will the relative good news for the wealthiest donors be enough to counteract the disastrous impacts of COVID-19 and a weakened global economy? The World Bank projects a rare net increase in poverty due to the pandemic, predicting that it could spawn 115 million “new poor” this year alone. Extreme poverty will rise for the first time this century. Eight out of ten of the extra people pushed into poverty in 2020 will be from middle-income nations, researchers predicted. As often happens, rich nations may be insulated from the worst effects of the pandemics economic impact, but that does not mean that ignoring the needs of donors and beneficiaries in the U.S. is an option for any nonprofit.
2021 fundraising recommendations
- Focus on the economic winners: As we have noted, with the strong performance of the U.S. stock market, high net worth individuals, philanthropists and foundations with large endowments will be positioned to give generously in 2021. If you don’t already have specific strategies for these donors, then it is time to develop one. If you do have a strategy, this is the area to double-down in terms of staffing and resources. A comprehensive strategy should include a specific set of prospects within each segment, in-depth donor research and a clear strategy linking each prospective donor’s stated philanthropic interests with elements of your core programming. This also means continuing to focus on donor-advised funds and small foundations that have flexibility to make large gifts at the discretion of their controlling parties.
- Despite the stock market’s 2020 performance, 2021 is likely to be a down year. Following the 2008 recession, it took nearly five years for philanthropic giving to reach pre-recession levels. As we’ve noted, due to the nature of our current economic downturn, it is difficult to predict if the recovery will be nearly as slow, but with historic levels of unemployment we expect small donor and mid-level giving to continue to decline in the short term. This may mean that difficult budgetary decisions lie ahead. Maintaining fundraising staff who can continue to cultivate relationships with donors will be key to easing the economic pain and positioning your organization for post-recovery success.
- COVID-19 will remain a focal point. Despite early-stage vaccine distribution, COVID-19 and its impact on all aspects of life will continue to dominate the conversation in the coming year. As we have noted in previous editions of this blog series, this means that organizations must both be able to articulate how COVID-19 is impacting their work, and how they are responding to it. While addressing this, also focus on supporting core programing that is not related to funding. The work you have always done and the people who have always supported you are still there. Don’t get too caught up in the pandemic and lose sight of the crucial role you play in your community, the country and the world. This is no small task and being prepared to make both a core programmatic pitch and a COVID-19 focused pitch will be essential to a successful fundraising program in 2021.
- Creativity and innovation will set you apart. Above all else, 2020 has required organizations to be nimble and develop creative solutions to unprecedented problems. Those that have been able to adapt quickly and launch and scale new programs were rewarded. This trend will continue in 2021 as many of the existing paradigms that succeeded in a pre-pandemic world, including hosting expensive galas or relying on in-person solicitations, are comfortably in the rearview mirror. Examples of key adjustments include but are not limited to:
- Providing flexible working space and schedules to both reduce budgetary constraints and increase employee satisfaction and trust.
- Launching innovative programs to deliver your organization’s work while everyone is home.
- Developing creative donor engagement strategies, such as virtual galas and small group gatherings, that maintain engagement despite physical distance.
- Exploring collective giving and unlocking the potential of everyday donors.
Thank you for following along with us over our three-part blog series investigating the triple threat to year-end fundraising. Please continue to keep an eye on the Give Global blog for other upcoming blog series and catch more useful tips, news and more from around the world.
If you haven’t already, check out parts one and two of this blog series: