Why Does Charitable Giving Drop In A Tough Economy?

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It's no surprise that as the U.S. economy declines,the rate at which people donate to charity declines as well. The current recession has caused declining wages,long term job loss and a lower standard of living for a great percentage of Americans.

With money being harder to come by, American consumers have also changed their discretionary spending habits. Because of that many businesses both large and small have felt the crunch of declining sales and lower profits. Included in that crunch have been charities and non-profit organizations. Anyone who relies on charitable giving is feeling the pinch as both businesses and individuals have reigned in their donations and financial support.

According to the Internal Revenue Service, the amount written off on tax returns attributed to charitable giving declined 10 percent in 2007. Charitable giving declined another 14 percent in 2008 according to the data, a far greater drop than had been anticipated or had been expected by experts.

The obvious reason for the decline is a simple lack of cash on hand. With Americans out of work or forced to survive on lower wages, charitable giving is often the first item chopped from the household budget. With houses losing value, and many individuals in their own financial distress, it is not a shock that the amount of charitable giving is in decline.

These IRS figures reflect only the approximately 75 per cent of taxpayers who itemize their deductions, and does not include people who donate cash at cash registers, churches, or other impulse donation sites. (Even those organizations have seen a drop off in the amount of cash-based charitable giving during high giving times of the year.) Furthermore, many individuals who are more affluent cannot write off the entirety of their charitable giving, which means they are only giving up to the amount they can write off. As a result, charitable trusts and grant providing non-profits have also reported a steep decline in the amounts of grants provided because of a loss in donors.

These organizations were also particularly affected by the roller coaster performances of the stock market during the recession. While working class Americans were seeing their 401Ks and pensions decline, charitable foundations, many of which are based on sizable endowments invested in the market, saw much of the growth experienced in previous years simply disappear.

While things have been dire for the past couple of years, directors of charities and non-profits see reason for long-term optimism. They cite the long-range nature of their organizational finances and the ability of the market to rebound. A return to a healthy economy would also presumably return some of the disposable income available for charitable giving. This means a better outlook for these nonprofits that have managed to hang on in the down times.

Another reason for optimism is the emergence of organizations that have combined consumer purchasing with charitable giving. With "necessity being the mother of invention," several retail outlets have cropped up, particularly on the Internet, that have partnered with charities and non-profits to donate a portion of their revenues to these organizations. In this way, charity-conscious consumers can still buy the things they need and want and get the sense of reward associated with charitable giving.

As we enter a presidential election year, no doubt the economy and how to revive it will be front and center in the debates. Closely watching will be the directors of charities and non-profits eager to see the economy rebound, and with it, a return to the increased charitable giving they saw in years past. The millions of Americans who benefit from these organizations and the work they do will be watching as well.
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