Donations of Very Rich Increase Despite Fall in Wealth
May. 29, 2009
The Sunday Times Giving List revealed that despite a 37.5% fall in the combined fortune of Britain's top 1000 wealthiest people this year, the top 100 philanthropists have put £216m (€242m) more into charity than during the previous 12 months, bringing their contributions up to a record £2.8bn, up 8% compared to 2007.
The report also stated that the Top 20 givers donated at least 4.5% of their wealth in the past year, while in 2008 a minimum donation of 3% was sufficient to make it to the top 30 list. For the second successive year the hedge-fund manager Christopher Cooper-Hohn topped the Giving List with a total donation of £462m to his Children´s Investment Fund Foundation.
The observed fact that in times of economic turmoil the giving of the very wealthy might not decrease as much as their wealth can be attributed to three man factors:
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Individuals with a lot of assets are more immune to short term volatility of the markets. They tend to have a broader asset allocation and also longer-term investment perspective.
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Even if the rich have a relative steep decline in their wealth in the short term, in absolute numbers their fortune remains very high. They would be able to cover their ongoing expenses irrespective of whether they continue their giving or not.
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Through trusts and estate planning, the wealthy would often have planned the frequency and amount of their donations years ahead, keeping it roughly steady independent of the volatility of the markets.
Nevertheless, the story is different for the not so super wealthy. As recent studies by Cygnus Applied Research showed that US donors overall will cut back on their donations in 2009. In the survey of 17,365 people donating on average USD 11,490 in 2008 about 52% stated that they would be on par with the gifts this year compared to last. However, 17.5 % plan to give less and about one-third are still undecided. An understandable development since the economic situation of the vast majority of the surveyed donor deteriorated and the “average” donor does not possess the reserves that the super wealthy have.
Particularly in times of economic uncertainties, donors should monitor all expenses closely and if appropriate reduce them, including donations, for a limited time period. This is also a good time to re-evaluate donation goals and the performance of charities. In the long-term no charity or foundation is of much help, if donors keep up with their giving at all costs and thereby eventually hurting the ability to participate in an economic upturn allowing them to increase their donations.