By Keith Sjögren.
Charitable giving is built on a foundation of accumulated wealth or surplus income and is dependent on a willingness and ability to give without sacrificing personal or family wellbeing. To assess patterns of charitable giving in 2023, we need to consider three economic and financial drivers of giving.
#1. The economy
The Canadian economic outlook for 2023 – at least for the first half of the year – is for slower, if not negative, economic expansion, as well as uncomfortable inflation and interest rates, persistently high levels of personal debt, and volatile asset values.
These factors, already in play in the final quarter of 2022, have created a situation that has resulted in a decline in both financial wealth and per capita net worth. Total financial wealth in Canada was reported by Investor Economics to have fallen by $500 billion in the first six months of 2022, despite an increase of $100 billion in savings account balances. Statistics Canada reported in December 2022 that per capital net worth in Canada fell by 3.8% in the third quarter of 2022.
The outcome of these financial trends and the declines in the number, frequency and size of liquidity events will be a decrease of liquid resources available for both spontaneous and strategic giving. This situation will continue until business conditions stabilize and inflation eases, which may not be until late in the second half of 2023.
#2. The role of affluent households
At least in the short term, evidence suggests that both national wealth and income, as well as giving, will remain concentrated within a relatively small number of affluent and high net worth (HNW) households.
Average giving by these households has steadily increased over the past five years as has the number of households in wealthy cohorts. In 2020, approximately 519,000 donors reported personal income in excess of $150,000 (10.1% of all donors), representing 40.5% of total donations. Also, the annual number of gifts over $100,000 increased from 4,710 in 2017 to 5,530 in 2020, a compound annual growth rate (CAGR) of 5.5%, while, over the same period, the total number of donations claimed in annual tax filings decreased at a CAGR of -1.4%.
What hasn’t increased over the past five years is the percentage of households within the cohort who are active supporters of Canadian charities. It’s unlikely that 2023 will witness any change in the reluctance of some 300,000 affluent and HNW households to change their habits.
As a result, the charitable sector in 2023 will be required to rely on all levels of government, as well as a relatively modest number of affluent and HNW households (no more than 1 million), to provide revenue and capital.
#3. Demographics
Although the economic outlook for 2023 is mostly gloomy, there are three fundamental demographic factors that may positively influence flows to the charitable sector in 2023.
The inter-spousal and inter-generational transfers of wealth
Conservatively estimated to be in the range of $1.5 trillion to $2.0 trillion over the next decade, inter-spousal and inter-generational transfers have represented, and will continue to represent, a growing source of revenue whether through bequests or the generosity of inheritors.
It’s not unreasonable to forecast that $10 billion of this “money in motion” will be received by the charitable sector over the next ten years.
In a number of cases, the preliminary and final transfer of wealth involves a significant liquidity event – the conversion of hard assets (such as real estate) or illiquid assets (such as shares in a family business) into cash. Despite the anticipated slowdown in 2023, these events that will continue to fuel some of the largest wealth transfers as well as charitable gifts in the next decade.
An obvious driver of the wealth transfer is an aging population.
Public data provides evidence that those older than 65 are the most generous donors, and survey-based research shows that there’s heightened interest by donors in being witness to the impact of charitable gifts. Combined, these factors suggest that the rise in giving by retired Canadians seen in recent years will continue in 2023. For 2020, Statistics Canada reported that donors over the age of 65 represented 32.2% of all donors and contributed 45.1% of total donations.
As further proof of this 65+ cohort giving more, the median donation claimed by this cohort was 65% greater than the median donation for all donors. However, this age group, many of whom are on fixed incomes, will be disproportionally affected by inflation, and there are indications that some lessening of donation activity is possible.
Wealth controlled by women
Although slightly dampened by the global pandemic, the increase in the share of wealth and income controlled and influenced by women is a third demographic factor. In 2020, total income generated by Canadian women was estimated to be $663 billion, and at the end of 2020, accumulated financial wealth controlled by affluent and HNW women – those most likely to give to charities – was estimated to be $2.1 trillion.
Women, globally, are recognized as being more generous than men, and there is every reason to believe that they will change the shape of philanthropy over the next few years.
Summary
Despite pessimistic projections made in the most recent CanadaHelps report, the expectation is that total donations in 2023 will be similar to that estimated for 2022. That said, that rate of increase in total donations in 2023 won’t meet the rate of inflation.
Although some current donors are likely to give less in 2023, if at all, the drivers outlined above may herald a slight increase in the level of giving by affluent Canadians. This view recognizes that almost 50% of total donations flow from the accounts of the affluent and HNW, and that 2021 saw an increase of approximately 150,000 households in the HNW segment.
The projection also considers the results of a recent poll by the Angus Reid Institute that indicated that 32% of those polled earning over $200,000 were considering cutting back on their donations as the result of the increase in living costs and debt service expenses. The impact of this finding is reduced by the fact that most major gifts flow from liquidity events or accumulated wealth not earned income.
Philanthropy, in terms of dollar flows, is unavoidably linked to fluctuations in national prosperity rather than the funding needs of charities. The relative scarcity of donors and donations, a situation that’s unlikely to correct itself quickly, may force the sector to critically examine the opportunities for economies of scale which may flow from consolidation, cooperation and other forms of strategic alignment.
Keith Sjögren is a consultant and researcher on wealth and financial services, as well as Chair of the MPNL Advisory Council. Read his 2021 article, “Fundraising Opportunities with High Net Worth Canadians & Their $5.9 Trillion.” Photos on this page are courtesy of Diego Jimenez, Donald Giannatti, Toa Heftiba, Charles Deluvio, Jeff Sheldon, Jonathan Chung and Dahlia Katz.
Sunday, January 29, 2023 in For homepage, News & Events, Trends
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