PHILANTHROPIC PORTFOLIOS: Conservative and Aggressive Charitable Giving Tendencies
Over the last decade there’s been a lot of emphasis on quantifying and measuring the results of charitable gifts. More and more donors view gifts to a nonprofit as social investments and evaluate their giving decisions in terms of the ROI (return on investment). Strategic donors have long seen themselves as change agents who evaluate their philanthropic investments like venture capitalists.
That’s generally a good thing because it constantly reminds nonprofits that it’s not their money. They are stewards of donors’ investments. It also forces development professionals to give detailed accounting for how they’ve invested and employed donor contributions. Almost all donors give to multiple charities, and you don’t want to be the one charity known for sketchy details on financial accountability.
Perhaps a better way (than risk tolerance) to describe donors’ giving profiles is how aggressive or conservative they give in order to have a meaningful impact on their world.
The investment approach to philanthropy also brings up the topic of risk tolerance. Risk is definitely an issue with significant charitable gifts. Organizational leadership, succession planning, endowments, and general financial health all contribute to the long-term risk of a contribution.
However, risk tolerance might not be the best way to think about it. Perhaps a better way to describe donors’ giving profiles is how aggressive or conservative they give in order to have a meaningful impact on their world. Aggressive and conservative tags are not necessarily a measure of a donor’s generosity but rather the kind of projects and proposals that inspire their giving. Consequently, fundraisers need to make appeals that match those donor investment profiles.
Generally speaking, some donor tendencies are listed below:
1. Donor Age
Older donors are by their very nature more conservative. As a whole, they are more likely to give to established organizations based on high reputation and high accountability. Consequently, the highest organizational priority for this group of donors is to protect and defend the organization’s reputation and accountability. If you take chances with your reputation and make a mistake, older donors are likely to abandon you.
Young donors tend to be more aggressive in that they are more likely to give to causes with which they emotionally identify. Organizational accountability is a concern but not the chief concern. The main attraction for young donors is often the chance to identify with the visionary cause. The cause is the main attraction, not the organization.
There are way too many cultural variables in play to know whether or not this generation of young donors will take a more conservative approach as they age.
2. Source of Assets
My observation has been that donors of any age with inherited assets tend to be more aggressive in their efforts to have meaningful impact than those whose assets were accumulated from earned income. Those who built wealth remember what it was like being poor and financially insecure — at least poor as compared to their current status. Just as the Great Depression left an indelible mark on that generation, building wealth from scratch provides a perspective that is hard to remove or replace. Donors will definitely give from accumulated assets, but they tend to do so more carefully and conservatively than will those giving from inherited assets.
Just as the Great Depression left an indelible mark on that generation, building wealth from scratch provides a perspective that is hard to remove or replace.
3. Giving Capacity
High net-worth donors with significant giving capacities tend to be more aggressive in their effort to have meaningful impact. It’s not hard to understand why. Generally speaking, they take greater risks with investments because a significant loss will have little to no immediate impact on their standard of living. In other words, they consider themselves to be playing with house money. Many high net-worth donors have the same aggressive approach to philanthropy. They are often willing and able to make big gifts to affect a strategic game-change.
4. Giving Approach
Some donors’ approach to making a meaningful difference is strategic while others give more tactically. Tactical philanthropists tend to be emotional givers who respond to needs, i.e. a tactical response to an immediate need. Strategic donors tend to invest in game-changing initiatives. An example from a previous blog is Hans Brinker with his finger in the dike. A tactical donor would support a small army of Brinkers putting their fingers in dikes all over Holland, in each instance saving the community from a flood. That would be, without a doubt, an example of generous and effective giving. On the other hand, a strategic donor would fund a comprehensive water management system that would solve the problem of a thousand leaky dikes.
It’s not that strategic donors are unemotional or unconcerned about individuals in need (in this example, Dutch homes and farms). However, they tend to give on a strategic, rather than a tactical level. Gifts that are truly strategic are usually very large, require a long-term commitment, and involve more risk. Consequently, strategic donors tend to be far more aggressive in their efforts to make a meaningful impact on society.
Theoretically, you could commission a donor-audit to come up with each donor’s approach to making a meaningful impact — whether they are highly aggressive, highly conservative, or somewhere in the middle. It’s not hard to discover age, assets, and giving capacity.
What are this donor’s dominant and secondary giving motivators?
The problem is that you can never know which aspect has the dominant influence on a donor’s giving. There might be a couple advanced in age with assets accumulated by hard work but who have very little giving capacity from their disposable income. Everything your donor software spits out indicates that they would be the most conservative of all givers — so conservative that you might not even bother talking to them about a gift from their estate. However, they have the deep desire to make a game-changing impact and will aggressively respond to such an opportunity. I see this scenario played out almost every week.
Donor profiles cannot be thought of simplistically. The motivation of any particular donor is far more complex, and no two donors are exactly the same. For any major donor to the organization, the question fundraisers need to ask is, “What are this donor’s dominant and secondary giving motivators?” And since the motivators are frequently different for husband and wives, fundraisers need to understand that as well.
This is really not as difficult it sounds, and it requires no high-level testing or psychoanalysis. Simply meeting with donors regularly and getting to know them enables fundraisers to easily craft appeals that line up with donors’ desires to have meaningful impact on their world.
Eddie Thompson, Ed.D.