If you asked most people what would happen in 2022, the vast majority would not have been able to predict the financial roller coaster that was 2022, or that charitable giving would remain strong. From 40-year highs in inflation and increasing prices in Treasury yields, to volatility in the stock market, “uncertainty” could have been the word of the year. If 2022 brought fresh humility, then we should certainly utilize it as we set expectations for 2023.
Despite the volatility of 2022, Charityvest saw its highest volume of Giving Tuesday donations ever, counter to some predictions of softness in the charitable giving market. For people who give purposefully — that is, people for whom charitable giving is a significant financial and personal priority by percentage of income or assets — we believe this year saw increased donations for two reasons.
First, purposeful donors consider giving an expression of deep values and partner, or desire to partner, with charities to make a real difference. In a year when charities have deeper needs from inflationary pressures, what economists call a “substitution effect” occurs. Donations become perceived as more valuable, so larger donations occur.
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Second, donors still want to be tax-smart. As wages were strong and equity prices were still quite appreciated over the last five-year period, the tax-savings opportunity alongside giving to charity remained significant. No matter what the year’s volatility looks like, donors make plans to reduce the year’s tax bill.
Looking ahead to 2023, what does this imply? Taxes aren’t going anywhere, inflation will slow its growth but continue to place pressure on nonprofit budgets, and a new bipartisan Congress is less likely to pass any sweeping policy changes. Most important, a real possibility for a recession continues to loom. Taking all of this into account, here are my top predictions for major giving trends in 2023.
1. Asset-Giving Will Increase When Equity Markets Recover.
At some point, the equity markets will stabilize and start to increase once uncertainty peaks. If this happens in 2023 — likely it will — equity prices will become increasingly appreciated. Donating assets as opposed to cash has tremendous tax benefits. Awareness of this among consumers and financial advisers is at an all-time high, and increasing. As the market bounces back, 2023 may be a record year for asset giving, especially equities.
2. Trust-Based Philanthropy Will Reach Mainstream Adoption.
Philanthropist MacKenzie Scott has catalyzed a tremendous amount of awareness and buy-in on “trust-based philanthropy” with her unrestricted donations to thousands of nonprofits now totaling over $14B. Trust-based giving is about building funder-grantee relationships that are more power-equal and trusting of nonprofit executives to execute with excellence and transparency.
Oversimplifying, it means major donors giving to charities with less strings attached. Beyond the billionaires like Scott, we’ll start to see foundations, large DAFs and even midsize everyday donors in 2023 start to give larger, more unrestricted (though potentially fewer) grants to charities than they already do.
3. Acceleration in Legacy Giving.
The largest generation in history, the Baby Boomers, are aging, and legacy planning is at the forefront of many families, especially wealthy ones. This will only increase in 2023.
With an estimated $30 trillion expected to be passed down from Boomers to Generation X to Millennials over the next 30 years, we expect giving related to estate/legacy planning to accelerate in 2023.
4. Collective Giving Will Continue Its Rise.
Disconnection and isolation are the problems of our time, especially post-COVID. Many people are searching for meaningful communities, especially where they can express shared values with others. Giving is an expression of values, and it can bring people together around something collectively “bigger.”
As technology is making it more and more frictionless, collective giving is rising. Collective giving can take many forms. From collaborative funds where donors combine their giving power to maximize influence and impact, to giving circles where donors democratize decision-making, collective philanthropy will continue to increase its role in giving.
5. Advisers Will Start to Differentiate on Their Ability to Offer Services and Advice Around Giving.
As more and more robo-adviser tools arise and Boomers retire, financial advisers are increasingly trying to differentiate their value from alternatives to win over new, young clients.
One area of value-added service is philanthropy. Some advisers are looking to form connections with clients around their life legacy and aiming to help their clients make an impact as a part of their financial goals. It’s a way that advisers can differentiate from robo-advisers and straightforward investment managers. More and more advisers will integrate philanthropic planning tools and know-how into their practice. This will continue to influence the landscape for how giving occurs between donors and charities.
As mentioned, no one knows exactly what to expect from the economy or the markets. However, these are all trends we’ve seen build over the last few years, despite volatility. Should 2023 be one with less choppy waters, we’ll only see these trends accelerate and a changing philanthropic landscape come into view.
This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.
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