Open for Business – The New Normal
As stay-at-home orders are lifted, and non-essential businesses start to re-open our lives are getting back to normal, right?
But what is normal?
For most of us who work in the nonprofit sector, we were never closed. The demand for our services is higher than ever and the outlook for charitable giving is uncertain at best.
Just four months ago, the economy was strong, the stock market was performing well, and unemployment was at record-low levels. All indicators pointed to growth in charitable giving in 2020.
Fast forward to now, millions of people are unemployed. Companies are declaring bankruptcy right and left. A recession is inevitable. Indeed, not what was predicted, and definitely not normal, or is it?
In Philanthropy Outlook, a report from the Lilly Family School of Philanthropy, presented by Marts & Lundy, the school’s research team included in their 2020 and 2021 models, predictions for what would happen if a recession like the Great Recession of 2007-09 took place. The inclusion of this model was to help nonprofits think strategically about and plan/prepare for the next recession.
Frightening and troublesome as they are, recessions are a normal occurrence in our modern U.S. economy. The U.S. has experienced 33 recessions since 1857, according to the National Bureau of Economic Research (NBER), varying in length from six months (January to July 1980) to 65 (October 1873 to March 1879). The average contraction lasts 17.5 months, but since 1945, durations have shortened significantly, averaging 11.1 months.
Looking back to prepare for the future
During the Great Recession in 2008, we saw a 40% drop in the equity market that corresponded with a 6% decrease in individual household giving. Using these characteristics, the Philanthropy Outlook model estimated that if a recession of similar magnitude occurred in 2020, giving would be 10.6 percentage points lower than the anticipated 4.8% gain without a recession.
We can analyze data points and causalities, but it does not matter how we got here. The fact is, we’re here – in a disaster zone that reaches across our entire country and around the world. Stories of loss are everywhere.
While in retrospect, this pandemic may “only” be a four to six-month event, the economic effects will likely be much longer-lasting. An overwhelming number of American families are woefully unprepared for the tribulation they are about to face.
It is estimated that 70% of households live paycheck to paycheck. Half do not have enough savings to deal with a $1,000 emergency. On March 25, the Wall Street Journal reported that 30% of workers could not miss even one paycheck before dipping into their meager savings. A full 50% of workers will not make it through a one-month layoff without significant financial hardship.
What does the COVID-19 pandemic mean for fundraisers?
Some of your donors may soon be at your doors seeking services such as food, utility, rent or medical assistance, emotional support or answers to other needs. You have most likely seen the influx of demand already. Resources are stretched thin. Your time, energy, message and money need to focus on where you’ll be able to achieve the highest return on investment.
Where will the money come from to provide 50% to 100% more programs and services? Your long time, higher-value donors – individuals and corporations – are the first line of support, followed by those who give only during disaster relief efforts. Others may come to your aid if they know your needs and understand the benefit you provide to your community.
All channels will be critical. Digital is the fastest to the market. Emails to your current donors and social media posts to your followers and prospects can tell the stories of help and hope at the frontlines of the crisis. Direct mail will also have an essential role because even in times of disaster, more than half of your funding will come from this traditional channel.
It is easy to see the adverse effects of a recession, but there are positive ones as well. Understanding them is the best way to survive the downturn.
Let’s face it; the COVID-19 pandemic is different from anything we’ve experienced before in our lifetimes. But history shows that people rise to the occasion and help during a major crisis. A quarter of high net worth individuals* gave to disaster relief efforts in 2017. Nearly all reported that it did not affect their giving to other causes throughout the year.
Additionally, individual giving as a percentage of disposable personal income has not materially changed in over 50 years. Of course, individuals experience the effects of the recession differently. Still, statistics show that giving levels were relative to the overall decline in the economy and not entirely a reflection of donor motivation or generosity.
Remember that major donors have historically given regularly as a percentage of their wealth, which has offset the momentous decline in overall giving during times of crisis.
Also, donations to human services organizations in the U.S. from all sources of giving (individuals, bequests, foundations, corporations) increased in inflation-adjusted terms in both 2008 and 2009. Giving to food banks stands out as one of the highlights, a 31.9% increase in 40 cities from 2008 to 2009.
So, what motivates donors to give?
Major donors consistently identify the following motivations:
- I believe in the mission
- I believe my gift can make a difference
- I am personally fulfilled when I give
- I give to the same organizations each year
- I want to give back to the community
- I want a tax benefit
You might be thinking, the Coronavirus Aid, Relief, and Economic Security (CARES) Act recently passed by Congress might be an opportunity to engage donors, but keep in mind that tax benefits are low motivating factors for donors at all levels.
What does normal look like now?
- Stay focused on your mission. Recognize and communicate the vital role you are playing.
- Move digital strategies to the forefront.
- Keep in touch with your donors. Share the stories that need to be told.
- There also may be room for donor-advised funds to give more during this time, as payout rates from them increased during the Great Recession.
- Be knowledgeable about the provisions of the CARES Act and discuss opportunities with donors.
Fundraising isn’t easy, and it is difficult to predict the total impact of the COVID-19 on the U.S. economy. But we are open for business. As Maya Angelou said, “If you are always trying to be normal, you will never know how amazing you can be.”
Rest assured, we are in this together. We are continuing to monitor the rapidly changing events and remain vigilant in providing you with the best possible advice as things progress.
*Portraits of Generosity, the 2018 U.S. Trust® Study of High Net Worth Philanthropy, a collaboration between Bank of American and the Indiana University Lilly Family School of Philanthropy.
Giving USA 2019
- The Philanthropy Outlook