2021—A Pivot Year for Charitable Giving

Where will charitable giving go in 2021?

It is 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% of GDP. 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, 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 and food services.

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. 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% on a year-over-year basis.

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 six keys to 2021 charitable giving:

1. Biden’s Tax Plan. While Congress moved in December 2020 to extend key CARES Act provisions, such as a $300 “universal” charitable deduction and the 100% AGI deduction, new legislation under the Biden Tax Plan will ultimately have the biggest impact on nonprofits. While no bill has yet been introduced to Congress, the elements of his plan are well documented: a 28% 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 and again point toward a downward impact on giving.
2. 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 the decade of upheaval—institutionally, socially and economically. The nonprofit world will not be exempt from this turmoil. Expect charities and churches to be in the crosshairs with increasing scrutiny. 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.
3. The Digital Transformation of Giving. In 2020, events suddenly went away. For most, in-person church services went away, and with them so did giving in the moment. 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 does not go backward. 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 spring of 2020 will not work in 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.
4. Major Gifts Through Business Sales. As the overall number of donors has continued to decline there has 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%…” 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.
5. 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% of Americans have multiple subscriptions. Angel investor Eric Stromberg notes subscription “creates an environment where default consumer behavior is retention…” Nonprofits are wise to create a subscription program as well. 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 do not receive.
6. 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.” 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%. 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.

One final note. As we press into 2021, I have had many say, “I’m so looking forward to getting back to normal.” My response is that there is no going back; this is our normal. While we will see vaccines increase and COVID-19 cases decrease and borders reopen to us, let us make no mistake. The year 2020 was more than just about 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.”

If we can assist you on your journey, please do not hesitate to call or email.