What Research Tells Us About the Nonprofit Sector

There is now an enormous body of research on nonprofits and their income streams, both in the United States and in other countries. Some of this research tries to determine who gives, why they give, and what they give to. The most widely used report is Giving USA, compiled yearly as a project of the Giving Institute and the University of Indiana. Every year since 1935, Giving USA researchers have calculated just how much money was given away to nonprofits and where that money came from. Their research over the years shows that the proportion of giving from each of the sources of private-sector giving—living individuals, bequests (a cash or other donation people arrange to be given to a nonprofit on their death), foundations, and corporations—remains constant, varying from year to year by only two or three percentage points, with nine times as many gifts from individuals (living and deceased) as from foundations and corporations.

A look at the numbers brings this reality out starkly. The chart below shows private-sector giving for the year 2014.

Given these facts, an organization should have no trouble knowing where to go for money: individuals provide the vast bulk of private support to nonprofits.

Who Gives Away Money

The logical follow-up question—Who are these people?—is more difficult to answer. There are many complex variables that make it difficult to draw a single profile of givers, ranging from where people live to whether they keep track of their donations. How and what data are collected on giving also influence the answer.

Data on giving are collected in three main ways:

• Analyzing tax returns of people who itemize and extrapolating from the results
• Surveying a random sample of the population (either one time or at several points in time) and extrapolating from their responses
• Comparing either or both of the results from these methods with what charities report to the IRS about their income (on their IRS Form 990) or what they report in polls and surveys

Further analysis of results can be done by looking at various demographic variables, such as age or income of those responding.

Discrepancies in reports about who gives away money and how much they give largely turn on the study methodology employed. Giving USA looks at itemized tax returns. Independent Sector, a coalition of about six hundred nonprofit organizations that speaks for the sector, bases its data about giving on telephone and written surveys. Because only 30 percent of Americans itemize deductions on their tax return, the results of Giving USA’s survey are limited. The 70 percent of Americans who file a “short form” tax return do so because their giving does not exceed the standard deduction, so they receive no special tax benefits from their giving. Estimates of how much that 70 percent give away probably undercounts a lot of giving.

Do people who itemize on their taxes exaggerate their giving? Probably, although some studies have shown that people under-report giving on their taxes. By how much in either direction? It’s hard to say. Do people exaggerate their generosity to a phone surveyor? Probably. By how much? Again, it’s hard to say. People may also forget how much they have given to a nonprofit when they have no incentive, such as a tax deduction, to cause them to keep track. Possibly the exaggerators cancel out the under-reporters.

Some other variables also make knowing who gives away money difficult:

• Although the majority of people give money from their annual income, the wealthy minority give from their assets, such as stocks. When looking at who is generous relative to their ability to give, some studies only take into consideration level of annual income; other studies look at total net worth. These two factors can yield very different results. For example, a family with little income could be wealthy in terms of assets (such as ownership of homes, stocks and bonds, businesses, art, and the like), or it could have no assets. One might expect those with assets to have greater ability to give than those without although for many people, their assets are not liquid.
• Studies that calculate which region of the country is the most generous usually fail to take into account cost of living. For example, two states may each have a median income of $40,000 per family, but in one state the median cost of housing per year may be $10,000 and in the other state twice as much. The people living in the second state might well give less money away than those in the first state, but factoring in cost of living may reveal that both groups are equally generous.
• Almost all studies try to focus on formal philanthropic giving, but if we were to count the numerous acts of unrecorded kindness—money donated to homeless people on the street or sent as remittances to family members in other countries, or help given to a friend to go college or to a poor family to pay rent for a few months—our studies not only would show much more giving but might also yield even more demographic differences among givers.

Looking at the question by studying what nonprofits declare as income would seem to give the most accurate data. However, a large portion of nonprofits—religious organizations, which constitute about one-third of the nonprofit sector and which take in about one-third of all giving—are not required to report their income to the government, in accordance with the doctrine of separation of church and state. (Nonetheless, about half of all religious organizations do report to the IRS voluntarily.)

So you can see the problem of trying to know who gives away money and how much: the majority of people are not declaring their giving on their taxes, and a large number of nonprofits are not reporting their income sources.

Nonetheless, there is research about who gives, and it shows that changes in the U.S. economy over the past decade are affecting giving patterns. Although most of the money given away continues to come from the largest economic group—middle-class and working-class people—an increasing percentage of gifts given are coming from high-net-worth individuals. Rising income inequality, which is eroding the middle class, is behind this shift in giving. Here’s what the statistics tells us: in 1998, Independent Sector’s research revealed that about 82 percent of all giving came from households with annual incomes of $65,000 or less—that is, the largest percentage of money was given by people in the dominant income range. By 2009, Giving USA reported that much less of donated funds—now only about 52 percent of all giving—came from households with a gross income of $100,000 or less—again, the dominant income range (92 percent of all households, according to the IRS). So, although people of more moderate means still contributed the majority of money given, wealthy people were giving far more than during the previous decade, and the wealthiest households—the 1 percent that had a net worth of $5 million or more—contributed 28 percent of all gifts, a significant increase over the giving of high-net-worth individuals in the 1990s.

The vast gap between America’s richest and poorest people, now the largest in history, has led to some very wealthy people, on both the left and right of the political spectrum and representing all kinds of other interests, donating millions of dollars to their pet causes while the majority of people give what they can, often from money they could have used for basic necessities. In 2013, The Atlantic noted, “The wealthiest Americans donate 1.3 percent of their income; the poorest, 3.2 percent” (www.theatlantic.com/magazine/archive/2013/04/why-the-rich-dont- give/309254/).

In a special report titled “How America Gives 2014,” The Chronicle of Philanthropy noted, “The growing income gap between the rich and the poor in America is reshaping generosity across the nation. . . . The wealthiest Americans are giving a smaller share of their income to charity, while poor and middle-income people are digging deeper into their wallets.”

Givers Give

In both recessions and boom times, most people all over the world give away money. One of the most important lessons I learned early on in fundraising is that what a person has and what he or she will give are largely unrelated. Sometimes people give away almost all their money, whether that’s a lot of money or a little. Sometimes people, whether rich or poor, give nothing. Most people give something. Although it may be interesting to think about what makes one person generous and another not, you will find it far more productive to focus your fundraising efforts on people who give and try to interest them in giving to your organization.

Despite the difficulties inherent in research about who gives, some facts found in a number of studies remain constant year after year and are borne out by the experience of development professionals all over the world:

• About seven out of ten adults in the United States give away money. Where these numbers have been studied more closely on a local level, we see some interesting variations. For example, in Hawai’i, nine out of ten adults give away money, whereas in Alaska, only six out of ten give. In Boulder, Colorado, where I grew up, a smaller percentage of the population gives away money than in nearby Denver. Differences are also seen around the world: eight out of ten Canadians give away money, but more people in Nova Scotia do than in British Columbia. In Holland, almost 90 percent of the population gives away money, despite paying very high taxes. In South Korea, 64 percent give; in the Philippines, 80 percent.
• Middle- and lower-income donors (those with annual incomes of less than $90,000) are responsible for the majority of donations and for at least half of the total amount given.
• Most people who give to nonprofits give to at least five groups; some give to as many as fifteen groups.
• In every year, about 20 percent of people on welfare give away money and about 97 percent of millionaires give away money.
• Volunteers are more likely to be donors than are people who don’t volunteer.
• More people give away money than vote.
• The majority of people who give away money describe themselves as religious or spiritual, whether or not they are involved in a formal religious or spiritual community.
• And finally, a theme I will return to a thousand times: people give when they are asked.

Regardless of the methodology used or the variables considered, study after study gives us a picture of a generous country, with most people making donations. They also give us a picture of middle- and lower-income donors responsible for a significant percentage of all money given away and of a constantly increasing amount of money given each year. Fundraisers of all sorts need to remind ourselves every morning, “GIVERS GIVE.” If I were brave enough to get a tattoo, I would tattoo that on my forearm. People who give away money are going to give it away. For those of us asking for money, our job is basically to say to givers: “Please consider my organization.” The money will be given away, and it will go to our organization or to another.

For organizations, a broad base of individual donors provides a reliable source of funding, and the growth of individual donations is critical to the organization’s growth and self-sufficiency. Most important, relying on a broad base of individuals for support increases an organization’s ability to be self-determining: it does not need to base program priorities on what foundations, corporations, or government agencies will fund.

Giving to Religion

Religion as a category receives one-third of every charitable dollar (down from one-half since I entered the field of fundraising in 1976). Only a small percentage of money given to religious organizations comes from foundations, and virtually none of it comes from corporations. We can learn a lot by examining what makes fundraising for religious institutions so successful. At first glance, many people think that religious institutions receive so much money because of their theology: the reward of heaven, the blessing of giving, the threat of eternal damnation for those who do not give. Although these enticements may play a role in some people’s giving, it is clear that in the wide variety of religious expression, these motives are not enough. Some religious traditions do not believe in any form of eternal life; some don’t even believe in God. Even in traditions that encompass some of these beliefs, mature adults can be given more credit than to think that their behavior is based simply on a desire for rewards or a fear of punishment.

So why do religious organizations receive almost one-third of all private-sector dollars? Although religious institutions offer ideas and commitments that are of great value, the reason they get money—and this is key to understanding successful fundraising—is that they ask for it.

Let’s take as an example a Protestant or Catholic church. (If you are of a different religious tradition, compare your own tradition to what follows.) Here is how they raise money:

• They ask every time worshippers are assembled, which is at least once a week.
• They make it easy to give: a basket is passed to each person in the service and all gifts are acceptable, from loose change to large checks. Increasingly, churches are able to accept credit card donations, with some churches providing envelopes on which to write your credit card number and others with the ability to swipe your card. Some churches have an ATM in their building. Everyone—whether out-of-town visitor, occasional churchgoer, or loyal and generous congregant—is given the same opportunity to give. The ushers are not concerned about offending someone by asking. They would never say, “Don’t pass the basket to Phyllis Frontpew—she just bought the new carpet” or “Skip over Joe because he just lost his job.”
• They make it easy to give, even if you are not a regular congregant. Once a year, most houses of worship have some kind of stewardship drive or all-member canvass; in many churches, someone will come to your house and ask you how much you will be pledging this year. You can pay your pledge by the week, month, or quarter or give a one-time gift. The option of pledging and paying over time allows people to give a great deal more over the course of a year than most could in a single lump sum.
• They provide a variety of programs to which you can give as you desire. If you are particularly interested in the youth program you can give to that, you can buy flowers for the altar, support the music program, or help fund overseas missions. Many churches have scholarships, homeless shelters, food banks, or other social programs. And, of course, if you are a “bricks and mortar” person, you can contribute to any number of capital improvements: new hymnals, a new window, a better organ, or a whole new sanctuary.

Finally, religious institutions approach fundraising with the attitude that their asking benefits you as much as your giving does them. In other words, they recognize that fundraising allows an exchange between a person who wants to see a certain kind of work get done and an institution that can do that work. If your values and beliefs include that a house of worship and the work it does are important, then in order for that institution to exist, you will need to help pay for it. Giving money allows you to express your desire and commitment to be part of a faith community and allows your commitment to be realized.

All organizations should institute the diversity of fundraising methods that characterizes most religious institutions. In the chapters that follow, I will show you how.