Does it feel like it's harder to fundraise?
You’re not wrong—less money is reaching nonprofits
At this time, nonprofits are facing a very difficult operating environment. Among the biggest challenges is declining philanthropic resources reaching many nonprofits. This is due to several concerning trends:
The percentage of American households giving to charity has been declining for about 20 years, with more and more philanthropic dollars coming from fewer people at the top of the wealth pyramid. This results in less funding going to community-based, local nonprofits, and those serving low-income people and marginalized groups.
More and more philanthropic dollars are being warehoused and not reaching charitable nonprofits. This is due to the rise of foundations and donor-advised funds, vehicles that allow for donors to receive a charitable giving tax deduction when giving to accounts that are not necessarily promptly distributing the funds to nonprofit recipients.
Fewer, wealthier donors
The share of American households giving to charitable nonprofits has dropped from two-thirds to less than half. There are several theories about why this has taken place (hollowing out of the middle class, declining participation in community life, changes to tax policy, the rise of crowdfunding, etc.). Whatever the causes, the result is that philanthropic resources are more narrowly controlled by fewer mega-donors, and large, better-resourced institutions like universities and hospitals have beefed up their development staff to cater to these donors and capture their giving.
Community-based organizations are more likely to depend on a broad base of middle-class donors—folks that give $100 to $2,500 and fill a table with friends at the annual gala. These are the donors that are disappearing. For resource-poor grassroots organizations, it is almost impossible to meet and build relationships with ultra-rich donors.
This results in “haves” and “have nots” among nonprofits. In addition, funding is increasingly controlled by donors at the top of the economic pyramid who are further removed from direct knowledge of community needs.
It is important to note that low and middle-income donors still tend to be more generous than their wealthier counterparts (consistently giving a great share of their income). The fact that fewer households appear to be giving may also reflect changes in how people give. Giving through crowdfunding campaigns like GoFundMe and mutual aid are not captured in statistics on giving to the nonprofit sector.
More funds held in donor-advised funds and foundations
In 1991, 5% of charitable giving went to foundations (including donor-advised funds). That same year, Fidelity Charitable was founded. Fidelity Charitable, the donor-advised fundholder named for its for-profit parent company, Fidelity Investments, is now the nation’s largest nonprofit and largest grantmaker. Fidelity Charitable held $66 billion (yes, billion) in assets as of June 30, 2024. That $66 billion are charitable donations for which the donors have already received a tax-deduction, but they have not yet been used for a charitable purpose. There is no legal requirement to regrant that money.
This type of giving has risen dramatically since 1991. Giving USA reports that “Among the recipients of giving, we see the strongest growth among grantmaking organizations: giving to foundations and to public-society benefit organizations that include national donor-advised funds.” In 2023, inflation-adjusted giving in these two categories rose 18%, dwarfing a 1.7% increase in giving to human services.
In 2024, a whopping 41% of charitable giving was diverted to private foundations, endowments, and donor-advised funds (DAFs). Some of these gifts are distributed in the same year to nonprofits, but much of the funding is stored for future use. This leaves just under 60% of donations being given directly to nonprofits and immediately used on behalf of communities.
Foundations are also guilty of warehousing funds. Foundations are generally ranked based on the size of their asset base, rather than their level of granting. Many choose to grow their corpus and secure their work “in perpetuity” rather than getting investment proceeds out the door to fund charitable work. From 2022 to 2023, foundation giving rose 1.7% (down 2.3% when adjusted for inflation). During 2023, the S&P 500 stock index increased over 24%. The five-year annualized return was over 13%. Anecdotally among my colleagues, the nonprofit experience of foundation grants over the same five-year period was largely flat giving in spite of rising costs, peppered with foundations wanting to take a break from funding a particular nonprofit to “encourage sustainability” and “reduce dependence.” Even during the COVID pandemic, while most foundations did increase granting, they also increased their assets substantially despite soaring community need.
What can be done?
Nonprofits need to continue to fundraise. Some are adjusting their approach in recognition of the shifts that are happening. In addition, the nonprofit community needs to speak up about the adverse impacts of these trends. This is difficult given nonprofits’ dependence on receiving these funds, but it is necessary to reform the system. I suggest putting pressure on the organizations that represent you to be a voice for reforming DAF and charitable giving rules (at the federal level) and participate in advocacy efforts. Consider following and participating in the Philanthropy Project, a new national campaign to reform philanthropy.
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