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February 11, 2013

Wealth Briefing: #NGD Report Reveals Donor Trends

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WealthBriefing

US-Based Philanthropy Group Issues Donor Trends For “Next Generation”

By Meg Lassar

February 11, 2013

Late last month, the Johnson Center for Philanthropy and the nonprofit consulting practice 21/64 released findings from Next Gen Donors: Shaping the Future of Philanthropy, the first ever study of “high capacity” donors ages 21-40 – a cohort poised to inherit upwards of $40 trillion over the next 40 years.

The study – based on an online survey as well as in-depth interviews – provides valuable insight into how these young donors will use their fortunes to engage in philanthropy. Findings suggest several ripe opportunities for wealth, legal, and philanthropic advisors to serve as trusted resources to this “next generation” of donors.

The study reveals a generation of donors – most of whom are wealth inheritors, not creators – with an abiding respect for their families’ philanthropic traditions. Ninety per cent of survey respondents reported that their parents influenced their thinking about philanthropy, and 53 per cent said they plan to be involved with their family’s philanthropy.

This means that advisors to affluent families must proactively invite clients’ children and grandchildren to participate in conversations about philanthropic planning. Failure to do so will result in a missed opportunity to foster relationships with this next generation of potential clients. Involving the next generation in family philanthropy can also make the difference between the successful transfer of wealth and values and the loss of family wealth and unity.

Missed opportunities

Often, advisors do not initiate relationships with younger generations until the death or disability of older generations demands it. However, 47 per cent of the young donors surveyed said they were first included in their families’ philanthropic activities between the ages of 21 and 30. And more than half of respondents reported that they were younger than 20 when they began giving to charity with their own funds. These findings highlight the importance of seeking out relationships with donors when they are young. The earlier – and more frequently – advisors engage with the next generation around wealth, philanthropy and financial responsibility, the more client loyalty they will engender.

The good news for advisors working with affluent families is that 70 per cent of the young donors surveyed live in the same place where their families’ giving takes place. Even those donors who do not live near their families say they are committed to continuing to focus a portion of their giving on their families’ local communities. It is therefore likely that the philanthropic interests and activities of clients’ children and grandchildren will be closer to home than many advisors assume. This makes the business case for engaging the next generation even stronger.

One specific point of entry for advisors looking to initiate a relationship with this generation is around the giving vehicle and giving strategies. The survey shows that despite younger donors’ interest in results-oriented philanthropy, they are still making almost all of their gifts in cash. In fact, nearly 85 per cent of respondents give via checks. This finding may indicate a lack of awareness about the benefits of donating non-cash assets. Further, only 6 per cent have private foundations and under 8 per cent have donor-advised funds. Educating donors to the pros and cons of various philanthropic vehicles is clearly a real opportunity for advisors.

The benefits of values-driven investment

Along similar lines, advisors might consider introducing their clients to investment strategies that align with their personal values. Many survey respondents expressed excitement about the potential of social enterprises to employ market-driven solutions to some of the world’s most pressing social problems. As one interviewee explained, “There are a million different ways to be philanthropic in 2012 that there weren’t in 1985.”

Advisors with impact investment and socially responsible investment expertise will undoubtedly gain the competitive edge when it comes to attracting younger, less risk-averse donors interested in exploring all of the different strategies available for pursuing 21st century philanthropy.

Donors from Generations X and Y are also typically more interested in hands-on engagement with the organizations they support. According to the study, they want to give “the full range of their assets – their treasure, of course, but also their time, their talents, and even their ties.” Rarely are they content to just write a check and be done.

While there are many ways for donors to legally engage with their grantees, it is up to legal advisors to ensure that their clients’ involvement with charitable beneficiaries remains within legal bounds – especially if they donate to organizations from their foundations. The more intimately foundation board members engage with the organizations they support, the more likely they are to encounter situations that might appear to be a conflict of interest or be classified as self-dealing.

This next generation of donors will shape the future of philanthropy in terms of the resources they choose to invest, the causes they choose to take up, and the strategies they use to advance social change. Yet, as Next Gen Donors points out, they are still forming their donor identities. Advisors can serve as knowledgeable guides, helping young people to craft their philanthropic legacies by equipping them with the services, tools, and information they will need to become effective life-long donors.

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