With UK wealth topping ￡12 trln in 2021 why are UK charities facing a fundraising crisis?
With the demands on UK charities increasing, and the wealthiest getting wealthier, this is not the time for charities to be facing a funding crisis.
So, what can be done?
I hope in this article to explain and highlight the challenges facing charity fundraisers and the huge opportunity that is available to them. I also want to challenge every financial adviser to understand how discussing philanthropy with their HNWI clients has become a moral imperative.
In the UK, 2022 will see a significant decline in disposable income for most of the population. Whilst charitable giving in the UK has been steady over the past 10 years, c. ￡11bln, the number of individual donors has seen significant declines.[1] The sharpest decline has come from the youngest.
In a survey for Statista[2], the number of 16–24-year-olds making donations in the previous 4 weeks has declined steadily from 74% in 2013/14 to 50% in 2020/21. Even the oldest age group, 75+ years, has seen a significant decline in the percentage of donors giving to 74% 2020/21. This trend is set to continue over the coming years as individual donors find themselves with less of an ability to give financially. Over the last few years, the UK’s GINI coefficient of disposable income has steadily increased, 35 in 2017/18 to 36.3 2019/20[3], and given that wages have failed to keep up with inflation, especially energy inflation, that coefficient is certainly set to rise further. This will result in charities losing more donations from their historic donor base of individual donors and if not addressed will lead to more significant cuts in the services they provide, the research they carry out and the support they provide to the neediest in our communities.
To address this decline in giving, the wealthiest of our population need to be encouraged to fill that gap and fill that gap efficiently. It’s not that the wealthiest do not give already, the average monthly gift has been increasing over the past years, and 9 out of 10 are involved in some way with philanthropy. The Beacon Collaborative report from 2020[4] stated that the average given for a UK High-Net-Worth-Individual is ￡4,000 per annum. It also reports that 20% of the wealthy would be described as highly engaged in philanthropy, and of these with wealth above ￡10m, they give at least ￡250,000 per annum, others around ￡25,000. In the UK, 2020 Credit Suisse estimates there were nearly 60 thousand individuals with a wealth over $10m[5], so that leads to 38 thousand UK multi-millionaires that are not heavily engaged with philanthropy. If 1 in 5 of these multi-millionaires increases their giving in 2022, from ￡25k to ￡250k, then charities will receive ￡1.7bln more this year. That’s 15% more than in 2020.
It's not a difficult subject to address for wealth managers and their clients. According to Wealth-X[6] philanthropy ranks 2nd out of 30 in interests of those with a wealth of over $5m. That Beacon Collaborative report stated that over half those surveyed said that getting professional advice on estate planning or leaving money in their will is a major influence on making a sizeable gift to a charity. So, wealth advisers can start that conversation with a positive outlook on the response they will receive back. And, financial advisers are particularly suited to provide advice on the most efficient forms of giving. This could be in the form of donating shares where the donor receives full tax relief on any capital gains and can also claim income tax relief on the shares market value, as well as other non-cash forms of donations. A recent survey by CAF[7] suggests that nearly a quarter of donors fail to use Gift Aid to increase their donation to the charity. But whilst it would be safe to assume most of the wealthiest donors tick the box on their charitable donation, leading to the charity receiving 25% more, they may not be claiming the additional tax relief on their self-assessments. Claiming Gift Aid at the Additional Higher Rate of Income Tax, (income over ￡150k), results in ￡312.50 per ￡1000 donated being returned for the major donor to give again.
It is not as though there isn't money to be given to charities. One of the biggest conundrums in the UK fundraising industry, is that the total level of giving has hardly changed over the past 10 years according to the Charities Aid Foundation [8], (￡11 bln 2010/2011, ￡11.4 bln 2020) whilst wealth has increased by over 30% in the same time. The major components of that increase in wealth have come from house price appreciation and the domestic equity markets. The latest national house price data gives a near annual 10% rise and in 2021 the FTSE 250 saw a 16% increase. This would suggest that total UK wealth would have increased by at least 12% in 2021, from ￡11trln[9], to ￡12.4trln. That would be a 48% increase since the end of 2011. Initial research completed by Blackbaud [10] states that giving between September 2020 and September 2021 fell 5.4% as the one-off nature of some of the giving in 2020 rolled off. If confirmed then UK giving in 2021 would be 2% less than the 2010/2011 total [11], the cumulative inflation rate was 20.7% over the same period, [12] compounding the struggles that UK charities are facing matching their programming to funding.
As a comparison, US Giving has risen from $298bln in 2011 to $471bln in 2020[13], nearly a 60% increase.
Conclusion
Financial advisers to HNWI need to take a lead and open discussions with their clients. Clients are already giving but need to be aided in this giving, to give more and give more efficiently. With 9 out of 10 HNWI donating to charities, advisers know those donors and they also know those that could become more engaged. It is the responsibility of advisers to now step-up and help increase the level of philanthropy and it is the responsibility of management at the wealth advisory platforms to provide education and support to do so.
Charities need to change their strategy. Given that donations have fallen over the past 10 years, why are charities believing that the same strategy would have any other result than to see donations stagnate at best? Charities need to address the decline in the volume of donors and target High-Net-Worth-Individuals and especially those that have the prospect of becoming “highly engaged” with philanthropy. This is a long-term strategy that charities have to be brave and bold about. 12-18 month plans are not feasible, 36-60 month plans are. But who knows these individuals better than their financial advisers? Building stronger relationships and collaborations with Wealth Management platforms should be any charity’s priority.
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References:
[2] https://www.statista.com/topics/3781/charities-in-the-uk/#dossierKeyfigures
[3]https://www.ons.gov.uk/peoplepopulationandcommunity/personalandhouseholdfinances/incomeandwealth/bulletins/householdincomeinequalityfinancial/financialyearending2020
[4] https://www.beaconcollaborative.org.uk/reports/the-giving-experience/
[6] https://go.wealthx.com/interests-passions-and-hobbies-of-the-wealthy-2021
[7] https://fundraising.co.uk/2022/01/18/a-quarter-of-eligible-donors-dont-use-gift-aid-when-giving/
[10] https://www.blackbaud.co.uk/industry-insights/blackbaud-index
[11] https://www.cafonline.org/docs/default-source/about-us-publications/uk_giving_2011_full_rep.pdf
[12] https://www.ons.gov.uk/economy/inflationandpriceindices/datasets/consumerpriceinflation
[13] https://philanthropynetwork.org/news/giving-usa-2021-year-unprecedented-events-and-challenges-charitable-giving-reached-record-47144