Generosity’s Change Agents

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The rise of a new, fast-growing class of charities known as donor-advised funds represents a momentous shakeup in charitable giving in the U.S. ILLUSTRATION BY MARCUS BUTT / GETTY

Thanks to the contributors to the New Yorker’s website, we get frequent updates on topics we are interested in that might not make it into the long form reportage of the print magazine; case in point:

THE WEALTH GAP IN PHILANTHROPY

By Vauhini Vara

Each year, Stacy Palmer, the editor of the Chronicle of Philanthropy, compiles a list of the U.S. charities that have raised the most money from private sources. In the twenty-six years that the Philanthropy 400 ranking has been published, one thing has stayed constant: United Way Worldwide is at the top. (The one exception was in 1996, when the Salvation Army briefly displaced it.) But when the results started coming in for this year’s list, which was published on Thursday morning, it became clear that a new No. 1 had emerged—an organization affiliated with Fidelity Investments, called Fidelity Charitable, which has grown to become one of the most influential charities in the world. “I was stunned,” Palmer recalled. The details were especially striking. Fidelity Charitable collected 4.6 billion dollars, a twenty-per-cent increase from the previous year. United Way ranked a distant second, with donations dropping by four per cent, to 3.7 billion dollars. “Not only were they”—Fidelity—“going to be No. 1, but they were going to be No. 1 by a lot,” Palmer remembered realizing.

Fidelity Charitable is part of a new, fast-growing class of charities known as donor-advised funds. These charities, which typically attract wealthier donors, let people set up “giving accounts” with funds that can be written off as charitable contributions. They can decide later—even many years later—where to funnel that money. Meanwhile, it is held in investments, with any gains returning to the fund. Fidelity Charitable is the largest of these, but there are other prominent ones: Schwab Charitable and Vanguard Charitable ranked fourth and eleventh, respectively, on this year’s Philanthropy 400.

Fidelity’s rise to the top of the list represented a momentous shakeup for a list that, for years, didn’t change much at all. Palmer has worked at the Chronicle since it was founded, in 1988, and recalls the days when United Way was a dominant force. The organization was known for collecting money from middle-class donors through workplace giving programs; those contributions would be funnelled to local programs that provided social services like feeding, clothing, and educating the poor. For a long time, these giving programs and their high-profile annual fund-raising drives were a mainstay of white-collar culture. “You were expected, if you were a good employee and you expected to rise through the ranks, to give to United Way,” Palmer said.

United Way is still a huge, influential organization, but its traditional fund-raising methods started becoming obsolete years ago. Employees didn’t like being asked to donate to a single organization that they hadn’t chosen themselves; that annoyance became even more pronounced when the Internet, and then social media, made it easy for people to learn about all kinds of charities, both local and global, not just the high-profile ones. Companies started more-flexible philanthropic programs, often even letting people donate to any charity and matching that contribution. Even United Way now lets workers earmark their donations to be passed through to specific organizations.

There’s been a more profound transformation, too. As wealth has become much more concentrated among the rich, it appears that the kinds of charities preferred by wealthier people are seeing disproportional growth. A report this summer from Indiana University found that, last year, donations to education and arts-and-culture causes grew more than for nearly any other category, with a researcher noting that those categories typically include organizations and institutions supported by wealthy donors. According to the National Philanthropic Trust, meanwhile, the average size of donor-advised funds is nearly three hundred thousand dollars, suggesting that they’re disproportionately popular among the rich. The Chronicle found that the Red Cross, Goodwill Industries International, and the Salvation Army all saw their donations fall last year, along with United Way—which Palmer said might have something to do with those organizations’ dependence on middle-class donors. Contributions to Fidelity Charitable and the other top donor-advised funds had double-digit gains, meanwhile, as did several élite universities, such as Stanford. “As the top one per cent has grown richer and richer, the kinds of cause they care about—colleges, museums—have been doing much better,” Palmer said…

Read the whole post here.

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