3 Reasons Donor-Advised Funds Benefit Nonprofits in a Bad Economy

In economic downturns or periods of high inflation, nonprofits often face funding challenges as donors tighten their purse strings. However, there is a bright spot in the charitable giving landscape that many organizations may overlook: donor-advised funds (DAFs). These giving vehicles offer a way for donors to make charitable contributions, receive immediate tax benefits, and recommend grants to nonprofits whenever they choose.

Let’s demystify donor-advised funds and shed light on how they can be a valuable resource for nonprofits — especially when the economic outlook is challenging.

1. Donor-Advised Funds Have Never Been More Popular

Donor-advised funds have seen a meteoric rise in popularity, with total charitable assets reaching a staggering $228.89 billion in 2022. Moreover, grants from donor-advised funds hit an impressive $52.16 billion in the same year.

This surge in DAFs means more potential donors may hold accounts, with funds set aside specifically for charitable purposes. Nonprofits that ignore the prevalence of donor-advised funds and don’t position themselves to be on the receiving end of this form of giving risk missing out a massive pool of financial resources.

2. Soliciting Donor-Advised Funds is Simple

Soliciting gifts from donor-advised funds is not as complex as it might seem. In reality, DAFs are just another means for generous individuals to support the causes they care about. But here’s the key — you have to ask. Nonprofits should engage their donors in conversations about DAFs and make it easy for donors to choose this option.

Having straightforward discussions with donors about their giving preferences, including the option of DAFs, can open doors to generous grants that might otherwise remain closed. Building a knowledge base around how these funds work and how grants are recommended can equip your fundraising team to guide donors through the process effortlessly.

3. Donor-Advised Funds Are Money Spent Already

Recommending a grant from a DAF is like deciding where to spend money that’s already gone from one’s bank account. There’s a psychological and financial ease for donors to use these funds since the money has already been earmarked for charity. In tough times, when a donor’s current income might not allow for them to be as generous as they want, DAFs provide an alternate means for them to support your nonprofit.

Prompting your supporters to consider making grants from their DAFs offers them the chance to remain committed to your cause without the burden of additional financial strain. It’s a win-win situation where the donor feels good about maintaining their support and the nonprofit continues to receive much-needed funds.

Conclusion

Donor-advised funds are a beacon of hope for nonprofits navigating the stormy seas of a bad economy. They provide a substantial, already-committed source of funding that many donors are ready and willing to tap into. And all your nonprofit needs to do is ask.

By understanding the power of donor-advised funds and integrating solicitation of these funds into your fundraising strategy, your nonprofit can secure a level of financial stability that weathers economic uncertainties. Don’t shy away from these financial vehicles; embrace them, and let them help sustain your work through a difficult economy.

If you’re interested in learning more strategies for successful fundraising in any economy, please contact IPM Advancement for a free consultation.