Bill and Melinda Gates brave the rain as they visit the Khayelitsha township in Cape Town, South Africa on October 25, 2019.
Brenton Geach | Gallo images | Getty Images
A version of this article first appeared in CNBC's Inside Wealth newsletter with Robert Frank, a weekly guide for the affluent investor and consumer. To register to receive future editions straight to your inbox.
While charitable donations have risen, the pool of donors is shrinking as philanthropy becomes hyper-concentrated among a small group of ultra-rich megadonors, a new study shows.
A new report from Altrata shows that ultra-high-net-worth individuals (those worth $30 million or more) now account for 38% of all individual giving in the world. In other words, 400,000 people are responsible for more than a third of the world's charitable activities.
It's even more extreme when you look at billionaires. The world's 3,200 billionaires (who make up 0.00004% of the world's population) are responsible for 8% of individual philanthropy.
The giving of those at the top is obviously positive. While it's worth debating whether the rich are giving enough (see the recent annual letter from Gates Foundation CEO Mark Suzman on how the rich should step it up), overall giving continues to grow .
The total donation level from ultra-high-net-worth individuals was 25% higher in 2022 than in 2018, even though 2022 was a bad year for the financial markets according to Altrata. North Americans remain the most philanthropic in the world, accounting for nearly half of global donations from that higher end.
The challenge for wealth advisors and nonprofits is adapting to a new, very top-heavy philanthropy landscape. Nonprofits, which for years benefited from a wide range of donors, now rely on a smaller pool of super donors, who are already inundated with requests. Charities will rise and fall depending on the interests and objectives of a small group of mega-financiers. And overall giving will become more volatile because the goodwill of billionaires and the ultra-rich is determined in large part by stock prices.
Amir Pasic, dean of Indiana University's Lilly Family School of Philanthropy, says the so-called “dollars up, donors down” phenomenon has caused nonprofits to rethink their fundraising and strategies.
“Many nonprofits are focusing more on these large gifts and trying to figure out how to access wealthy donors and foundations,” he said.
At the same time, he said, some nonprofits are trying to stem the tide of prosperity and use technology and more creative outreach programs to tap into a larger community of smaller, younger donors.
“It's a Catch-22,” he said. “Everyone is rushing to the top of the pyramid, but it is becoming so concentrated that they may neglect the importance of reaching tomorrow's donors.”
According to Altrata, today's ultra-rich megadonors are largely male, with a majority over the age of 70 and with a higher share of liquid wealth (i.e. cash) than the broader ultra-high net worth population. However, women are an emerging force. While women make up 11% of the ultra-high net worth population, they represent 22% of major givers, according to the study.
Today's ultra-wealthy donors also prefer to give through private foundations and donor-advised funds – giving them more control – than simply writing checks to the Red Cross or United Way. According to Federal Reserve data, assets in private foundations have more than doubled since 2005 to more than $1.2 trillion.
Nearly one in five of all ultra-high-net-worth individuals have a private foundation, and 30% of those worth $100 million or more have a foundation, according to Altrata.
The giving priorities of the wealthy also differ from those of the broader public, which could lead to more money flowing to charities specific to the wealthy or even to a few individuals. According to Altrata, education was the top cause for ultra-wealthy donors (at 54%). This was followed by arts and culture (32%), healthcare and medical research (28%), social services (23%) and environment/conservation/animals (14%).
Although religion is by far the most important charity for Americans, Altrata said religion is not among the top seven charities for the ultra-wealthy, although Altrata noted that because giving to religion is often “anonymous and disparate in nature,” the actual number may be even higher.
“There is evidence that the ultra-wealthy population has different leanings than the broader population,” Pasic said. “And that can also be distorted by a small number of very large donations to one charity.”
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