Since we’re all used to pivoting – or rather pirouetting – these last two years, 2022 has not disappointed either. From record-high gas prices to sharp rent increases, inflation this year has shaped the economic landscape of the United States in ways not seen in decades. As more and more people continue to face financial uncertainty and anxiety, it’s likely to affect the philanthropic sector – and in some ways, already has. In 2021, charitable giving grew 4% from the previous year – but when adjusted for inflation, it actually dipped 0.7%. So what exactly is inflation’s impact on philanthropy?
Defined as the general increase of prices of goods and services in the economy over time, inflation essentially means the decrease in the value of money. As prices rise, power of purchasing is decreasing. This is the one economic factor that experts say does tend to affect charitable giving. As we begin our year-end planning, here are some reasons why it’s important to rethink your year-end campaigns sooner rather than later.
Inflation tends to most heavily affect low-income and marginalized groups who more than likely were already having difficulty making ends meet. When wages don’t keep up with the cost of living, many individuals and families are forced to rely on nonprofit services such as food banks, clothing distribution, shelter, health centers, and more to meet their needs – which organizations may not have the capacity to handle. When demand for assistance skyrockets, nonprofits face a similar problem as the effectiveness of each dollar is reduced – limiting their resources and ability to help those in need.
Another way inflation will impact organizations with increased demands could include staffing issues. Though employee turnover isn’t a new problem in the nonprofit sector, what many know as “the Great Resignation” left total nonprofit employment in November 2021 as low as 5% below pre-pandemic levels. While many for-profit businesses are more easily able to raise wages to attract and retain workers, many nonprofits don’t have that luxury – which can result in employees leaving their jobs, feeling overworked and underpaid.
Impact on Fundraising Efforts
As we face the realities of turnover and issues keeping up with demand, this will most likely result in difficulty meeting certain fundraising goals. The more economic unrest donors face, the less likely they can be inclined to give.
Furthermore, many donors may not realize the way that inflation reduces the value of money. A concept called the money illusion causes most people to think inflation means that prices are rising – when in fact, what’s actually happening is that the purchasing power of each dollar is declining. This can in turn cause donors to unknowingly reduce the value of their gift. It’s not that donors want to give less; it’s that they are inadvertently doing so because they may not recognize the decreasing purchasing power of their donations.
Back to the Future
It’s important to keep in mind that this isn’t the first time we’ve been through something like this. In the summer of 1980, inflation peaked at 14.6% – more than double than what we’re seeing today. Looking through a historical lens can help ease some fears. Giving is not necessarily guaranteed to go down during – in fact, it rose or stayed stable even when adjusted for inflation in 9 out of the 15 years on record with at least a month of recession. Inflation can also affect different types of giving in various ways – like in 1982, where corporate giving rose by 11% whereas individual and foundation giving fell both by 2-3%.
Putting Our Best Foot Forward
As inflation continues to fuel economic uncertainty, we need to find ways to rethink strategies and adapt to shifting conditions without compromising services to those who need them. Budgeting accordingly will be vital, as will holding expenses in line. This is easier said than done when demands for nonprofit services continue to outpace capacity. Nonprofit leaders and teams are finding themselves figuring out how to do more with less. Compound this with negative factors at play for the second half of 2022, the environment for giving is a rocky one.
This is why it’s critical to start thinking about taking steps sooner rather than later to prepare for the unpredictable balance of this year as end of year campaign planning commences. First, evaluate your budget and if you need to reforecast, do so. Where are the financial gaps you may expect to face and how can philanthropy fill those gaps? Who are the closest stakeholders who help the most? You might start with your board and ask them to consider increasing their support. Now is a good time to plan 1:1 virtual or in person stewardship check-ins with your top donors. Be candid about the forecasting you’ve done and share the highlights of what you have been able to accomplish so far. Finally, think creatively about how you might leverage your year-end campaigns. Perhaps you announce a challenge grant. Maybe you set a Facebook fundraiser or other peer-to-peer competition. Share clear goals you want to raise and what that support will do (hint: not to meet your budget but to serve X meals, shelter Y people, etc.).
While the tendency will be to double down on asking, remember that sustained and increased giving only comes from balanced strategies of asking AND thanking with more emphasis on the thanking.