Despite fear and uncertainty among nonprofits about the sliding economy and turmoil in the financial markets, a leading expert on wealth and philanthropy is optimistic about charitable giving.
While giving fell in the recession that followed the bursting of the dot.com bubble in 2000 and the 9/11 terrorist attacks in 2001, the rate of the decline was only half that of the decrease in wealth, says John J. Havens, senior associate director and senior research associate at the Center on Wealth and Philanthropy at Boston College.
And despite the recent plunge in the stock market, which already has recovered some of its losses, stocks account for less than 10 percent of households’ assets, and stocks affect mutual funds, bonds and pension reserves, which together account for another 15 percent to 20 percent, Havens says.
Americans also own homes and businesses, so the market does not immediately affect the remaining 70 percent to 75 percent of household assets, he says.
Although their wealth affects Americans’ capacity for charitable giving, he says, their giving also reflects their personal income, their employment and their access to credit.
“I tend to be optimistic,” he says. “People are overreacting to the current bad conditions.”
In fact, he says, “large gifts are continuing at a high level.”
Large planned gifts, or those that are deferred or complex or involve assets other than cash such as stock or real estate, for example, have “inertia of their own” because they take time to plan and often involve lawyers, documents and accumulated funds, Havens says.
And that inertia “continues through the first year of a downturn,” he says.
So instead of panicking, he says, nonprofits should watch for trends in personal income, unemployment and government efforts in the U.S. and abroad to ease the credit freeze.
“If personal income were to drop and wealth were to drop off and remain low, we’d be in serious shape with respect to philanthropic giving,” he says.
And if government efforts to loosen credit “do not have a major effect,” he says, “I would anticipate we’re going to have a very long and deep recession, with declines in both wealth and income, and therefore a major impact on philanthropy as well, although probably less so in percentage terms than on income itself or wealth itself.”
But he says he believes those efforts “will have the desired impact.”
Haven, who looked at per-household data on net worth, personal income and charitable giving for the period before and after the most recent recession, says wealth and giving patterns for households tend to be more stable than those of capital markets or personal income.
“So if past is prologue, we would expect the total amount of philanthropy to continue or increase for another several months or two to three quarters, but possibly not as rapidly,” he says.
“The real big question is whether the economy can sidestep this crisis so it doesn’t extend into employment and incomes of people,” he says. “I’m optimistic because I think we’re panicking too much.”