Giving USA recently released the topline data from their much anticipated annual report on charitable giving in 2021. Compared to 2020, total giving was up 4 percent in current dollars but down 0.7 percent when adjusted for inflation, compared to 2020. Since the initial data was released, many leaders in the charitable sector are discussing what this drop in real dollars is going to mean in the years to come. If history has taught us anything, giving could continue to fall in 2022 when adjusted for inflation.
So, what does the new data from Giving USA tell us? Total giving in 2021 reached almost $485 billion, setting another record high when considering current dollars donated. This initially appears encouraging following the historic giving levels in 2020. However, if we take a step back and consider how far these charitable dollars can go in today’s economic climate, the inflation-adjusted data paints a completely different and unfortunately concerning picture.
Looking back at what history has taught us, during certain times of high inflation and economic uncertainty giving behaviors change and giving decreases. For example, as the country entered a period of persistent inflation in the early 1970s, charitable giving fell by approximately 9 percent (adjusted for inflation) from 1972-1975 and didn’t return to pre-1972 levels until 1978, according to data from Giving USA. With inflation rising considerably over the last couple of years, similar to the rise in the early 1970s, we could see inflation-adjusted giving continue to fall. Once people recognize the uncertainty of the economy, they tend to be shy when opening their wallets, and they adjust their spending and charitable giving behaviors in response.
Some advocates in the charitable sector suggest that a way to increase the pool of donors and charitable dollars is to protect and enhance charitable giving incentives like the charitable deduction and giving vehicles like donor-advised funds and private foundations. At the same time, some skeptics are unsure if that will be enough to right the ship, while others posit that donors may be redirecting their giving in nontraditional ways, such as donating to crowdfunding campaigns or mutual aid.
If history is prologue, the current economic climate will have implications on charitable giving for years to come. To soften the blow, advocates and policymakers could look to tax policy to address this troubling outlook sooner rather than later.