The February 2022 Consumer Price Index (CPI) reported year-over-year inflation rose to 7.9%, its highest rate in 40 years.
Some more experienced fundraisers may remember the high periods of inflation during the late 70s and early 80s—when inflation rates were over 14% and mortgage rates were in the double digits. But for many leaders in the nonprofit community, this is uncharted territory.
The inflationary impact on donors and charitable organizations is here and may be for some time. At the most basic level, inflation is an increase in the cost of living over a period of time. We have already seen large increases in gas, food and cars.
How Inflation Impacts Donors
We know that giving increases when donors feel good about their financial stability. And that looks very different during periods of inflation depending on demographics. The lower income and middle class are likely to struggle as gas, food and rent prices increase. While wealthier individuals may be less impacted with fixed-rate mortgages, less debt or a greater ability to work from home to limit gas expenses.
In periods of high inflation, donors of all demographics are likely to become more strategic about their giving—whether that’s reassessing the amount and organizations they give to or finding creative ways to give.
Inflation Creates Opportunity
Historically, the stock market tends to do well in periods of high inflation. Although the stock market has had a rough start to 2022, we can’t forget that the S & P 500 rose almost 27% in 2021. Individuals with investment portfolios may be more inclined to give from their wealth such as appreciated stock than make a gift of cash.
Donors who are concerned about the impact of inflation on their current budgets and the economic environment may be more open to gifts after their lifetime like gifts in a will or beneficiary designations. Encourage percentage giving. A fixed sum of money does not allow for changes in the estate’s value or inflation.
During rising inflation or economic uncertainty, donors may wish to use funds that have already been set aside for charitable giving. According to the National Philanthropic Trust 2021 DAF Report, there is an estimated $160 billion in donor advised funds. Encourage your donors to recommend grants (or recurring grants) to your organization.
Some donors may be a bit more hesitant to create fixed life income gifts such as charitable gift annuities or charitable remainder annuity trusts given that the annuity rate will not adjust for inflation. They may be more interested in a charitable remainder unitrust where the revaluation of the trust assets allows payouts to increase if the trust assets grow, which can allow your income stream to keep up with inflation.
Inflation and Your Organization
How can you help your organization safely navigate this period of high inflation? Here are a few tips:
Educate. Get your board members and staff involved in planned giving fundraising. They need to help open doors and continue to steward donors. And it can be easy—sometimes it’s just a phone call. Educate your board members, staff and donors not on the technicalities of complex gifts or tax laws but through donor stories.
Retain. The nonprofit sector has faced employee turnover for a long time and the pandemic along with inflation has made it worse. The nonprofit sector was not immune to the “Great Resignation”. In a recent blog, we offered tips for retaining top fundraisers.
Communicate. Your finance team will need to think more about your cash reserves because they are likely generating an interest below that of inflation. This issue is exacerbated with higher levels of inflation and means your organization suffers an even more significant depletion of cash value in real terms.
Start planning your organization’s inflation strategy now with these three critical steps:
- Talk with your finance team. Communication is key. Encourage your finance team to have regularly scheduled conversations with your organization’s investment managers on how best to combat these inflationary times.
- Meet with your annual giving staff. Those annual donations that your donors have been giving year after year are now worth less than before. Encourage your annual giving staff to reach out to your annual donors to increase their monthly or yearly contributions to take into account the current economic environment. If, for example, you have a donor who gives $1,000 per year and inflation is at 7%, then that donor would need to give $1,070 to make the same impact to your organization
- Encourage donors to update their estate plans to include percentage giving. Some of your donors may have named you as a beneficiary in their estate plans for a certain dollar amount. During periods of higher inflation, the value of these gifts will quickly decrease over time. The gift will not be worth as much as it was when your donor included the provision in their estate plan. Encourage your donors to use percentage giving—such as 10% of the value of their estate. This will help keep the gift proportionate to the asset value.
Periods of high inflation do not have to be all negative. You can create opportunities for your organization and your donors. Use this time to communicate and educate your donors on more strategic giving and work with your internal team to develop a strategy to minimize the impact of inflation on your organization.