Observers mixed on forecast for charitable giving

Even as the U.S. economy slogs through a slow recovery, forcing many Americans to cut back on spending, there are signals that wealthy Americans won't be deterred from making fourth-quarter charitable donations

Even as the U.S. economy slogs through a slow recovery, forcing many Americans to cut back on spending, there are signals that wealthy Americans won’t be deterred from making fourth-quarter charitable donations.

Observers are mixed, however, on the economy’s overall impact on the state of giving. Although executives from two of the nation’s biggest donor-advised funds expressed confidence that a sense of altruism will motivate most donors to give, some advisers are resigned that none but the richest Americans will maintain the same level of charitable donations as in the past.

Because Americans historically do most of their charitable giving in the fourth quarter, it’s still too early to know whether this year’s donations will keep pace with past levels. A new study from the Fidelity Charitable Gift Fund, the nation’s largest donor-advised fund, with $5 billion in assets, gives some reason for optimism about what to expect heading into the holiday season.

According to the study, 72% of 502 responding donors said that they will maintain or increase their charitable-giving level this year, compared with 2010.

In addition, 72% of the respondents plan most or all their charitable giving ahead of time. This finding could point to the fact that many donors have their charitable funds set aside and accounted for during the year, which lessens the impact that economic conditions have on fourth-quarter giving.

“That’s the beauty of a donor-advised vehicle, because they can contribute money at certain times of their lives and grant it over time,” said Kim Laughton, acting president of the Schwab Charitable Fund, the nation’s second-largest donor-advised fund, with $3 billion in assets. “It acts as a buffer during difficult economic times, and that’s why you see an increase [in charitable giving] even when the markets are volatile.”

HELPING OUT

The economic downturn could actually mean more charitable giving in the fourth quarter, as Americans who have the financial means may be motivated to help organizations in search of funding, said Sarah Libbey, president of Fidelity Charitable.

Although she said that she is somewhat surprised by the percentage of respondents in Fidelity’s survey who said that they plan to maintain or increase their level of giving, Ms. Libbey is confident that charitable giving is embedded in the country’s “social fabric.”

“I owe it to the commitment and values of Americans overall across the demographics,” she said. “We are really committed to charitable giving and volunteerism, and maybe combined with the economic challenges, there is heightened awareness around the needs of nonprofits.”

But advisers who work with high-net-worth and ultrahigh-net-worth clients are seeing a clear disparity between the two groups when it comes to charitable donations.

Kevin Myeroff, chief executive and president of NCA Financial Planners, said that ultrahigh-net-worth clients — whom he considers to be those with assets of $5 million or more — haven’t stopped giving. However, high-net-worth clients — those with assets totaling $250,000 to $5 million — have become less inclined to donate and more concerned with their retirement nest egg, paying off credit card debt and paying down their mortgage.

“If you overgive to a charity and it hurts your retirement goals, then you have given that one donation and that’s it,” Mr. Myeroff said. “We think you’re better off getting your house in order, and then you can become lifetime givers to charities.”

Meanwhile, Rick Watson, registered principal at Eagle West Group Inc., said that since the crisis of 2008, he has seen a 30% to 40% drop in charitable donations among his clients, who typically have assets in the range of $1 million to $3 million.

With unemployment continuing to hover around 9% and recent college graduates struggling to find work, charitable donations could be affected for years to come.

“A lot of my clients tell me they have their own charity, and it’s their children,” Mr. Watson said.

For Jared Roskelley, senior vice president and director of financial planning at Jackson Financial Advisors Inc., the drop in charitable giving among his clients has been especially stark, even going back to 2000.

The effects from the 2008 financial crisis have been even more damaging, he said. “There was a lot of wealth depletion, so clients pulled back on charity giving and we’ve seen a lot of that pullback stay,” he said.

Ms. Laughton of the Schwab Charitable Fund pointed to long-term holdings earmarked for donor-advised funds, which may show gains in value despite this year’s market volatility.

“Charitable giving is impacted in part by the performance of markets, and so how the markets are doing in the fourth quarter is going to matter more,” she said.