Why the wealthy give and why they don’t

Barclays Wealth recently explored the barriers and motivations to giving in a white paper, based on the Tomorrow’s Philanthropist survey as discussed in the opening article.

Emma Turner, head of client philanthropy at Barclays Wealth, commenting on the research, says, “High net worth individuals today are a very diverse community of people, having accrued their wealth through a huge variety of different sources, from technology to inheritance. However, the findings of this report show that despite these differences they are predominantly motivated by values which are deeply rooted and traditional in nature, like family and religion. As charities seek to understand how they can work more closely with this complex group, it is crucial that they understand what is stopping them from giving, as much as they focus on what is motivating them to give.”

The report lists 20 motivators for giving (see chart below) with ‘being able to afford to give’ at the top.

The level of giving is directly related to religious beliefs, familial duty and a sense of social responsibility, research shows. The Barclays Wealth findings precisely echo those of Why Rich People Give (WRPG) by independent philanthropy advisor Theresa Lloyd, which showed that religion, family tradition and values and a sense of community are the key drivers.

Quoting from Lloyd's article Could the rich give more?, she says, “Once people have engaged on the philanthropic journey, then other factors kick in. In particular the sense of personal fulfilment that reinforces the practice of giving becomes a primary incentive for recurring commitment and involvement. This personal fulfilment may come from knowing one has made a real difference (because one can see the impact of the philanthropic investment), learning about other areas of activity (whether in social welfare, the arts, health services, higher education) and meeting like-minded and sometimes inspirational people - whether the professional staff and volunteers who deliver the mission of the organisation receiving the money, other donors or, in some cases, the beneficiaries.”

The Barclays Wealth research shows two key barriers to giving are feelings of financial insecurity and a lack of duty to society, family or religious beliefs.

Lloyd says, “The question of ‘how much people feel they can ‘afford’?’ is crucial. My own research also touched on this issue. In WRPG we saw that feelings of financial security were unrelated to levels of wealth. Indeed most interviewees recognised that their attitudes to money and financial security were tied up with emotion, family history and personal insecurities, and not related to a rational analysis of their current and future needs. This is echoed in US research. And as the Ledbury Research paper points out, feeling that ‘I can afford to give’ was the most frequently cited reason for giving (mentioned by 50% of HNWI interviewees). This was closely followed by motivators related to giving back to society, personal fulfilment and social beliefs.”

Financial security among the wealthy has been shaken by considerable declines in wealth. The Economist’s New World of Wealth report says that by one estimate, the global population of ultra high net worth individuals fell by nearly a quarter from 2008 to 2009 and their wealth shrank by 24%. “Most of the very wealthy are feeling completely at sea right now,” says an American ultra high net worth individual interviewed for the report.

Martin Brookes, of non-profit think tank New Philanthropy Capital, quoted in the Barclays Wealth report, says, “Many feel it can be a bit premature to give away large amounts of money if they don’t know exactly how much money they need or they’ve actually got.”

The recession has engendered new feelings of financial insecurity and is focusing donors’ sights on the measurables of giving. Impact reporting has moved even further up the agenda.

“The very wealthy want to understand more than ever where their money is going,” says Jason Sumner, senior editor at The Economist Intelligence Unit. The downturn has made them more sceptical, ask more questions and in some cases take a more direct, hands-on role he says.

Hand in hand with insecurity is a distrust of charitable organisations. The majority of the wealthy (53%) believe that charities are inefficient in managing donations, according to The Economist report. Efficiency too is a factor in giving, particularly in choosing who to give to. The Barclays Wealth report shows that once the wealthy have decided on a general cause, efficiency and the amount spent on administration are ranked as two of the most important factors when selecting an individual charity (89% and 88% respectively).

However, a just-released report from San Francisco-based Hope Consulting reveals a surprising insight for report writers – while the wealthy may care deeply about supporting effective charities over mediocre ones, they don’t necessarily have the appetite for research that could help them sort the good from the bad, says The Chronicle of Philanthropy reporting on the survey.

Based on a poll of 4,000 people and on interviews with donors with incomes over $80,000, to determine how to encourage charitable giving and channel more money to effective non-profit groups, they found that few people investigate the performance of non-profit organisations. While 85% said that a charity’s performance is very important, only 35% conducted research on giving and just 2% gave based on a group’s relative performance.

“There’s not a lot of demand for a very complicated scoring system,” said Greg Ulrich, one of the study’s researchers. “We need to meet people where they are.”

Fundraisers and organisations that provide donors with information on charities ought to provide relatively simple information in the areas people care about, including how their gift will be spent, says Ulrich.

While clearer, more simple communication could help attract and engage donors, more of the same communication will not. Most donors surveyed in The Economist report said that they were satisfied with their charitable giving, with one exception being how frequently they were asked for money.

Lloyd believes recipient organisation have much to improve in the way they manage their relationships with significant prospects and major donors.

“While there are honourable exceptions there are far too many organisations whose management of significant prospects and really major donors is inadequate – undertaken by inexperienced and junior staff, with no engagement by trustees or senior staff outside the fundraising team. They often do not provide clear and transparent information on the impact of philanthropic investment. They mostly do not ask for and respect the expertise that is the source of the wealth. They tend to have clumsy bureaucratic procedures. They rarely thank people promptly or address them appropriately. They do not ask donors how they would like feedback, or provide opportunities for the donors to learn more about the work. They do not explain the business model, or the importance of core costs, and then grumble when donors want their funding to go only to projects.

“They are not willing to invest in creating and nurturing potentially major long-term relationships. They do not make it easy and enjoyable for donors to bring in other potential supporters. And, crucially, they misjudge why the prospect might support them, and what they should ask for, because they have not done their research. In other words the experience of giving is neither as fulfilling nor as much fun as it could and should be.”

Motivators and barriers are a mix of deeply-held beliefs and more pragmatic factors. While donor behaviour is a complex area, evidence suggests greater understanding of donors’ needs along with more sensitive stewardship could overcome many of the obstacles that hamper more giving.