One of the most compelling narratives in philanthropy right now isn’t about who’s giving, but about who isn’t giving — and why.
The question applies across the philanthropic wealth spectrum. Middle-income households have dialed back support in response to inflationary pressures and the 2017 Tax Cuts and Jobs Act. Many large foundations aren’t disbursing 5% of noncharitable-use assets toward grantmaking and other allowable expenses. And a steady stream of research and commentary suggests that affluent individuals give a relatively small percentage of assets to charity.
Tepid giving from this latter demographic is particularly jarring. Given all the money on the table — or more specifically, tied up in DAFs and the private foundations of living megadonors — it speaks to a vexing, existential question facing fundraisers: How can they unlock support from affluent families who are reluctant to reach for their checkbooks?
A new report written by leaders at the National Center for Family Philanthropy, the philanthropic consulting firm Arabella Advisors and ideas42, a nonprofit that applies behavioral science to social impact challenges, aims to help fundraisers answer that question. Drawing on those groups’ collective expertise and insights from more than 75 donors, family foundation staff and advisors, “Overcoming Psychological Barriers to Giving” lists 10 obstacles preventing individuals — especially those in the higher income brackets — from giving, ranging from too many choices to a lack of time.
These barriers are interrelated and often interdependent. For instance, an individual may be overwhelmed with too many options and hamstrung by the fact that they’re working 60 hours a week. The report concludes with a diagnostic tool to help fundraisers and families overcome each obstacle.
“The fear, frustration and doubt that often results from holding the barriers leaves many stymied,” said report co-author Nicholas Tedesco, the president and CEO of the National Center for Family Philanthropy. “The good news is that recognizing the presence of psychological barriers is the first step toward untangling and moving through them.”
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Helping donors “feel less stuck”
Tedesco, who spends a good portion of his time talking to families about their charitable goals, said the inspiration for the report “came from our reflections on the role of psychology in our daily lives, and how cognitive distortions impede progress on personal, professional and philanthropic goals.”
This led the report’s authors to consider how “shifting the mindsets of donors by drawing on principles and practices of cognitive behavior science… might help donors feel less stuck and bring greater satisfaction in their giving” and unlock more philanthropic support.
The NCFP report landed on 10 barriers: Too many choices, burdensome and tedious tasks, lack of urgency, fear of attention and public scrutiny, the worry that the donor needs to learn more to make good decisions, lack of trust in nonprofits, the possibility of uncomfortable family dynamics, feeling uncomfortable with risk and uncertainty, operating with a scarcity mindset, and lack of time.
Most of these barriers will sound familiar to readers navigating their daily lives. Have you ever been overwhelmed by the sheer number of cold medicines at your local CVS? Sociologists call this the “tyranny of choice.” Or perhaps you have a healthy distrust of institutions. If so, a robust body of research suggests you’re not alone. That said, while reading the report, I was struck by the fact that the cognitive distortions infusing our daily lives show up differently among affluent individuals who want to make a good-faith effort to grow their philanthropy.
For example, an individual’s paralysis in the face of myriad nonprofit choices can be exacerbated by a huge inheritance that increases the urgency to give wisely. Someone in the public eye may worry about how a gift could land on social media. “Such a swirl of factors,” the report states, “often makes it tricky for donors to isolate where to start to reduce the overwhelm.”
Overcoming the scarcity mindset
I encourage readers to dig into the 10 barriers and how they can be conquered. But I’d like to look at one barrier in particular — “operating with a scarcity mindset” — that’s especially applicable to high-net-worth families, who represent an underleveraged source of charitable support.
In a country where a long-term rise in wealth inequality is transforming philanthropy as an endless series of eye-poppingly enormous fortunes comes online, the idea of a recently minted tech multimillionaire or real estate mogul being held back from giving by a “scarcity mindset” seems counterintuitive. What’s the hold-up?
The report posits two answers to this question. First, wealthy donors “often define success in terms of the quantity of wealth because of the peer groups they are in.” And second, “as there is no universally defined level of wealth that indicates success, the threshold for success becomes a moving target.” (To this point, a recent piece in the Wall Street Journal explores the subtle ways the “super-rich signal their wealth to each other.”)
Add it all up, and these individuals, some of whom may feel less secure as they get richer or have a majority of their wealth tied up in illiquid assets, “fear future scarcity if they spend too much of their wealth now.” Throw in other contributing obstacles like a lack of time and an aversion to risk, and the individual dials back or postpones meaningful charitable giving.
The NCFP report lists three action items to help donors overcome the barrier of a scarcity mindset.
First, by creating a giving plan and crunching the numbers, they’ll likely feel “a greater sense of abundance.” The report notes that donors should also seek out likeminded peers through formal networks such as the NCFP, Generation Pledge or the Solidaire Network. Lastly, the report encourages donors hamstrung by a scarcity mindset to reject external benchmarks misaligned with their values, like public rankings or “the size of vacation homes.”
“Awareness precedes action”
While some readers may chuckle at the thought of a philanthropic advisor cheering up a donor who’s insecure about the size of his summer house in the Hamptons, I realized that most — if not all — of these barriers apply to individuals across the income spectrum.
A scarcity mindset can make a middle-income household think twice before writing a $100 check to a nonprofit, or a foundation trustee balk at ramping up the institution’s payout. (Speaking of which, I couldn’t help but notice that the Gates Foundation, which has its critics, but also boasts a five-year average payout ratio of 10.2%, provided support for the NCFP research.)
The NCFP report digs into how a scarcity mindset, when coupled with other barriers to giving, can prevent affluent individuals from engaging in meaningful philanthropy.
Consider the report’s case study donor, a high-net-worth individual named “David.” A hedge fund manager by trade, David has only made grants through his foundation to organizations where he sits on the board and to those his friends asked him to support. Qualified disbursements fall below the 5% payout, so to avoid the penalty tax, he puts the balance into a donor-advised fund, where it isn’t required to flow to working nonprofits — ever.
Cognizant of his hedge fund partners’ larger philanthropic footprint, David wants to scale his giving, but he’s reluctant to hand over decision-making to third parties — including family members — and lacks the information to proceed intelligently. “In the meantime,” the authors note, “the assets are just growing — as are his stress levels.”
I found David’s predicament striking because it encapsulates common behaviors across the philanthrosphere at a time when the Dow and S&P 500 are hitting record highs.
Affluent families often set up private foundations to support a handful of familiar nonprofits. Meanwhile, foundations are giving more money to DAFs to meet the 5% payout. Family members overseeing the institutions don’t always see eye to eye on a host of financial and strategic issues — something which is often the sign of a thoughtful and deeply invested leadership team.
I suspect there are countless “Davids” out there who recognize they should be seeking out new organizations and disbursing more money as their net worth continues to grow. But doing so can require these individuals to step out of their comfort zones.
“The research reminds us that so much of success in philanthropy is rooted in embracing a mindset of possibility and the ability to adjust your circumstances and behaviors when barriers present themselves,” Tedesco said. “Awareness precedes action and is a necessary condition for change.”
When it comes to taking that action, the report notes that donors can “find a path forward in five cross-cutting ways”: doing “one small thing” to build momentum, reframing preconceptions around issues like defining success, simplifying the operational mechanics of grantmaking, connecting with peers and enlisting help from experts, consultants and advisors.
Readers who were expecting a complex flowchart replete with consultant-speak may find these recommendations to be basic. They aren’t alone.
“The barriers [to giving] themselves didn’t surprise us,” Tedesco said when I asked him to reflect on the report’s takeaways. “What did surprise us was the simplicity and the potency of the solutions to overcoming those barriers.”
