Where will charitable giving go in 2021?
It’s a critical question. Why? In recent years, total charitable giving has run in the $400 billion range. The nonprofit sector contributes more than $1 trillion to the U.S. economy, accounting for over 5 percent of GDP.1 The 2020 Nonprofit Employment Report from the John Hopkins University Center for Civil Studies tells us that, as of 2017, there were 12.5 million paid employees in the nonprofit sector. (As of October 2020, the sector was down 900,000 jobs compared to pre-pandemic levels). It is America’s third-largest workforce behind only retail trade and accommodation/food services. Moreover, nonprofits account for nearly three quarters (71 percent) of the nation’s private employment in education.
In short, it matters where the nonprofit world will go in 2021.
In the spring 2020 lockdown phase of COVID-19, the outlook for the nonprofit world looked grim. In the first three critical months of the pandemic (March-May), 71 percent of jobs in private educational services disappeared.2 But as the country reeled from the health and economic crises, Americans responded with generosity. In October, Philanthropy News Digest reported that charitable giving for the first half of 2020 was up by 7.5 percent on a year-over-year basis.3
What will happen in 2021? While it would be easy to throw our hands in the air and say, “It’s anybody’s guess,” the framework is already in place.
Here are seven keys to 2021 charitable giving:
Biden’s Tax Plan. While Congress moved in December 2020 to extend key CARES Act provisions (a $300 “universal” charitable deduction and the 100 percent AGI deduction), new legislation under the Biden Tax Plan will ultimately have the biggest impact on nonprofits. As of this writing, no bill has yet been introduced to Congress, but the elements of his plan are well documented: a 28 percent cap on the value of itemized deductions will have a depressive impact on major gifts. Further, Biden has proposed several tax increases of varying types. While not all are likely to be passed, some will pass and again will tend to have a downward impact on giving.
The Politicization of Charity. If 2020 taught us anything, it is that our nation is undergoing systemic change. Geopolitical expert George Friedman in The Storm Before the Calm predicts that we are in a decade of upheaval—institutionally, socially, and economically. The nonprofit world will not be exempt from this turmoil. Expect charities, churches, and Christian schools to be in the crosshairs, with increasing labels and a cancel culture mentality. The loss of nonprofit status may be at stake for those rightly or wrongly deemed to be out of step with new majority positions. This is a dangerous road—either way we go.
The Digital Transformation of Giving. In 2020, in-person events suddenly went away. As schools closed their doors and switched to online education, enrollment and tuition dollars decreased. The pandemic accelerated a growing trend: excel digitally or go home. Last year we saw some organizations enter the digital giving space for the first time. Technology doesn’t go backward. The year 2021 will be marked by a growing emphasis on digital marketing, digital giving, and digital vendors. The right vendors will matter for an integrated giving experience. What worked in the spring of 2020 won’t work in the fall of 2021. Artificial intelligence and increased sophistication across the board will spark an entirely new era of what it means to grow relationships and gifts—online.
Major Gifts Through Business Sales. As the overall number of donors has continued to decline, there’s been an increasing emphasis on major donors and major gifts. Much of that major donor demographic is part of the Boomer Generation who are retiring and in the midst of business transition—specifically business sales. For instance, ArkMalibu, an M&A firm, reports in their year-end review: “Excluding the Materials sector, all major Global Industry Classification Standard sectors saw positive growth in deal size and count from 3Q20 to 4Q20 [and] aggregate deal value grew 162 percent.”4 As business sales continue at record pricing levels, there is a largely untapped opportunity for donations of stock as a charitable tax planning component of the transaction. This opportunity—donation of closely held stock as part of a business sale—represents one of the most fruitful areas for major donor growth.
Subscription Mentality. What used to be limited to magazines and newspapers has expanded to streaming services, meal kits, and a whole category of monthly subscription boxes. According to Small Business Trends, 69 percent of Americans have multiple subscriptions. Angel investor Eric Stromberg notes subscription “creates an environment where default consumer behavior is retention.”5 Nonprofits are wise to create a subscription program as well.6 As with any monthly giving program, a subscription model provides consistent support and helps insulate charities from economic swings. But the subscription model aims to include donors as subscribers to the work, with regular updates as long-term partners. The challenge will be to develop and maintain those relationships with subscribers. They expect to get something of value—a personal message or valuable insight others don’t receive.
The Resilience of the Charitable Heart. In The Man Who Couldn’t Stop Giving, Sam Kean, writing for The Atlantic, says simply: “Explaining generosity is a headache for biologists; Charles Darwin considered the trait one of the gravest threats to his theory of natural selection.”7 We saw this play out last year: During a global pandemic and when things seemed to be at their worst, charitable giving was up for 2020. At The Signatry, we saw giving go up by nearly 30 percent. No matter the times, no matter the hardship, the giving heart still exists and moves to aid those in need. And that is indeed good news.
The Importance of Reserves. The economic downturn of 2020 showed us the importance of having a reserves fund or endowment set aside. Organizations that could dip into reserves were less threatened by an unpredictable economy. A reserve account or a “foundation” may be as simple as setting up a donor-advised fund. During a crisis, a fundraiser can go to major donors and ask for contributions to a reserve account or foundation and explain that the contribution will pass through to cover operating costs. The key is that “reserve account” or “foundation” suggests the idea of a larger gift. Especially as private schools face an uncertain future, endowments will become increasingly necessary for stabilizing their finances. Focus on building up a reserves fund or an endowment fund that will sustain your school through hard times.
One final note. As we entered 2021, I heard many say, “I’m so looking forward to getting back to normal.” Now, in the latter half of the year, my response is that there is no going back; this is our normal. While we will see vaccines increase, COVID-19 cases decrease, and borders reopen to us, let’s make no mistake: The year 2020 was about more than just a global pandemic. It was about fundamental systemic changes in our world. We must embrace change to advance the work. As the prophet, Daniel, proclaimed, “. . . the people who know their God shall stand firm and take action.”8
If we can assist you on your journey, please don’t hesitate to reach out to us at thesignatry.com.
Bill High practiced law for twelve years before becoming the CEO of The Signatry. As CEO, he has spent over eighteen years helping families live simply and give generously. He specializes in coaching families, individual givers, and financial advisers regarding biblical generosity and family legacy. He and his wife, Brooke, have four children and three grandchildren. He can be found at billhigh.com.
ENDNOTES 1. “The Nonprofit Sector in Brief 2019,” National Center For Charitable Statistics, June 2020, https://nccs.urban.org/publication/nonprofit-sector-brief-2019#the-nonprofit-sector-in-brief-2019.
2. Lester M. Salamon and Chelsea L. Newhouse, Nonprofit Economic Data Bulletin no. 48. “2020 Nonprofit Employment Report,” (Baltimore: Johns Hopkins University Center for Civil Society Studies, June 2020). Available at ccss.jhu.edu.
3. “Charitable giving increased 7.5 percent in first half of 2020,” Philanthropy News Digest, October 8, 2020, https://philanthropynewsdigest.org/news/charitable-giving-increased-7.5-percent-in-first-half-of-2020.
4. “ArkMalibu M&A Market Monitor—January 2021” ArkMalibu, January 26, 2021, https://arkmalibu.com/news/arkmalibu-ma-market-monitor-january-2021.
5. “7 Surprising Industries Turning To Subscription Business Models” CB Insights, accessed March 16, 2021, https://cbinsights.com/research/report/subscription-business-model-industries.
6. Dave Raley and Carly Berna, “Sustainer Giving in a Subscription Economy,” Outcomes, accessed March 16, 2021, https://outcomesmagazine.com/sustainer-giving-in-a-subscription-economy.
7. Sam Kean, “The Man Who Couldn’t Stop Giving,” The Atlantic, May 2015, https://theatlantic.com/magazine/archive/2015/05/the-man-who-couldnt-stop-giving/389531.
8. Daniel 11:32 (ESV).