The Best of Business Week Online: Charity
Why So Many Are Giving So Much
The long economic boom--and new ways to save on taxes--have produced an outpouring of generosity
In an era that celebrates the stock market, private enterprise, and wealth itself, the boom in benevolence is often overlooked. But charitable organizations are proliferating, while more and more individuals are treating charity as a core part of their long-term financial plan, much like investing for retirement.
Since 1980, the number of nonprofit foundations has more than doubled, with nearly three-fifths of the nation's largest created during the past two decades. And the scale of giving reflects the rising generosity. Americans gave some $190 billion, or 2.1% of U.S. gross domestic product, to charities in 1999 (chart). That's up from $124 billion and 1.7% of GDP in 1994, according to the American Association of Fund-Raising Council.
Two factors suggest that these figures will swell dramatically in coming decades. It's no coincidence that charitable contributions are rising during a record economic expansion that has pushed median household net worth to an all-time high of more than $75,000.HUGE GIFTS. And the surge of benevolence seems likely to be sustained by the upturn in the country's long-term growth rate. Many economists think the economy can grow at an annual average of 3.5% to 4%, far above the 2% to 2.5% speed limit most economists cited during the early 1990s.
Take this striking example of growth's potential impact on charitable giving. Boston College Professors Paul G. Schervish and John J. Havens estimate that an aging population could collectively leave its heirs $41 trillion over the next 55 years. Perhaps more than $6 trillion could go to charity, they argue. (Go to www.bc.edu/bc_org/avp/gsas/swri/ for the study.)
The numbers could turn out to be even more spectacular. The $41 trillion is based on an underlying 2% trend in GDP growth over the next half-century. If the economy expands at a 3% rate, the wealth-transfer calculation jumps to $73 trillion, with $11 trillion going to charity.
The other force that is driving charitable giving is the democratization of finance. In the past three decades, a money revolution has transformed personal finance. Mutual funds, online trading, 401(k)s, and Roth IRAs are only a few of the innovations that have created greater financial choice for millions of people.
Much the same goes for charitable giving. No longer do you have to be an Andrew Carnegie or a Henry Ford or John D. Rockefeller in order to set up a foundation. A growing number of mutual-fund companies offer charitable-gift funds, typically with a $10,000 minimum, that share many of the characteristics of family foundations.EASY TO DO. Fidelity, for instance, launched a charitable gift fund in 1992 and as of June, 1999, it had more than $1.8 billion in assets. Charitable gift funds are easy to set up, since the financial institution handles the investment and record keeping. Donors get an immediate tax deduction for their cash or securities contribution; they get a large say in which charities get the money, and the endowment compounds over time. Once the fund is set up they can make contributions with a phone call or online. And with more than half of U.S. households owning stock, more middle-income people are donating appreciated stock rather than cash.
Underlying this outpouring of generosity is a deep impulse that was illuminated by an insight of Alexis de Tocqueville, the peripatetic 19th century social philosopher, that still resonates today: Americans "are forever forming associations. There are not only commercial and industrial associations in which all take part, but others of a thousand different types--religious, moral, serious, futile, very general and very limited, immensely large, and very minute." A moving expression of this American sense of community is sharing the wealth. The New Economy has made that more possible than ever before.By Christopher Farrell; Farrell Is Contributing Economics Editor for Business Week. Read His Sound Money Commentaries at Www.Businessweek.com/today.Htm, or Listen to His Broadcasts on NatioReturn to top