Canada Helps has just published The Giving Report 2023[i]. The current situation and the underlying trends are concerning. Donations in 2020 exceeded 2019 by 2.9%, which is inadequate growth compared with the increasing need for charitable services. The number of donors funding charities continues to decrease, meaning fewer donors carry the load.
Highlights from the report include:
Two in ten Canadians plan to access charitable services to meet essential needs in the next six months. This is an increase from 14% in January 2022.
Charities are not keeping up: 57% report demand significantly or moderately exceeds capacity.
The number of donors claiming a tax deduction has dropped 22% from 2010 and 38% since 1990.
Two-thirds of total donation dollars tracked by the CRA in 2020 (the latest data) are from those aged 55 and older. This group’s funding growth has slowed recently to half its average.
Against this backdrop, we might consider it time for a change in approach. The report includes this apt quote:
“If you do not change direction, you may end up where you are heading.” -Lao Tzu
Recommended changes
The report suggests some fruitful avenues to improve the situation:
strengthen relationships with donors,
better engage with younger donors (less impacted charities already do so),
improve the value proposition for volunteers,
invest in staff and capacity, and
embrace digital thoroughly for each charity and the entire sector.
Other developments
Recent changes to Canada’s Disbursement Quota (DQ) have increased the amount foundations must spend annually (from 3.5% to 5%), beginning to implement in 2023. Effectively the DQ appropriately ensures that tax-supported charitable dollars get spent on charity in a timely manner. However, this DQ also ensures that the capital base inside the foundations cannot grow significantly.
Some advocates [ii] demand foundations go far beyond the DQ level of 5% to entirely spend down, hoping that new foundations of similar size or equivalent annual donations will arise after the spend-down bonanza depletes. Given the trends, this reliance on future donors to replenish foundation funds could be optimistic.
Generally, though, these improvements will require significant investments that can be expected to yield fruit and help to future-proof our charities. But could we do more?
Financial Independence for charities
This blog repeatedly argues for investing small amounts of seed funds today and using the incredible power of compounding to deliver future funding for the charitable sector.
'Financial independence,' as I define it, means that a charity can fully meet all service demands and yet is financially independent of the need for more donations. Compounding over decades and centuries can accomplish financial independence. Such a program can also be increasingly beneficial every 25 years, eventually reaching the goal of financial independence.
I propose that financial independence for charities could be achieved by creating Funds Generators that operate outside the charitable sector, outside the DQ, paying taxes just like any business, and after significant compound growth, payout increasing amounts regularly to charities.
By using existing law to openly propose a new form of enterprise, charities could legally use accumulative compounding. This has not yet been set up in Canada but is not a radical proposal. I have been calling this proposed Funds Generator “Bensway” in honour of Ben Franklin, who inspired this approach.
Here is what Financial Independence for the entire Charitable sector in Canada could look like. Let's say we want to double our annual donation levels from today's $10 B to $20 B annually when we declare that financial independence is reached. This annual contribution would be in addition to any ongoing donations.
I calculate that such independence could be achieved in less than 200 years by setting aside 4% of yearly donations ($400 Million) for just five years. In this proposal, every 25 years, 50% of the new fund balance is donated to a charitable foundation.
After 25 years, charities receive the original seed money plus some interest, and, by year 50, charities are far ahead. Contributions grow every 25 years. At a 5% DQ rate, charities receive $2.7 B annually by year 100, which grows to $22.7 B by year 175.
Concerns:
In our example, the seed funds are $400 M for five years, representing 4% of the current annual $10 B in total donations. This may seem terribly unaffordable in these stressful times but consider the investments the other recommendations will require.
If the donors are suitably emotionally engaged, this program could generate more than the $10.4 B annually required to be revenue neutral.
Donors should be encouraged to feel they are part of the long-term solution. Perhaps the 4% additional gift is only permitted after the first regular gift is proven to be made. I hypothesize that adding this magnifying element would attract even more significant gifts.
I understand that contributing without immediate charitable benefit is concerning, but let’s consider the meaning of charity:
“Give without the expectation of receiving anything in return.” Roy T. Bennett
“You have not lived today until you have done something for someone who can never repay you.” John Bunyan
Contributors to a Bensway Funds Generator might live to see a first payout 25 years after contributing but will likely not see later scheduled payouts. Like planting trees, Funds Generators are designed and intended to continue to provide benefits for hundreds of years.
Yes, we won’t benefit ourselves, and those we give to that receive could never repay us after we pass away. Charitable donors understand and would not place self-interest on a list of concerns.
(For a full list of Pros and Cons of giving to the future vs today, see my blog from June 2022)
The vision
These two quotes[iii] capture the vision for Bensway:
“Not until the creation and maintenance of decent conditions of life for all people are recognized and accepted as a common obligation of all people and all countries—not until then shall we, with a certain degree of justification, be able to speak of humankind as civilized.” Albert Einstein
“While we do our good works, let us not forget that the real solution lies in a world in which charity will have become unnecessary.”Chinua Achebe
Imagining a world with no need for charities is hard to do. More likely, if individuals, society, charities and governments fully and democratically address all of humanity’s needs, everyone shall experience thriving living conditions. Then we could speak of our society as ‘civilized.’
Everyone will be included
No matter your financial means, your donor intent can be honoured once a publicly open Bensway Funds Generator is in place. Everyone in the world will have an opportunity to set their personal charitable priorities
“Everyone can be great because everyone can serve.”Martin Luther King Jr.
We must act now because we see that the world needs to change, and it is within our power to begin.
“Change will not come if we wait for some other person or some other time. We are the ones we’ve been waiting for. We are the change that we seek.” Former US President Barack Obama
We must act now because we see that the world needs to change, and while we are alive, giving charities Financial Independence is within our power to create.
[i] The Giving Report 2023 | CanadaHelps - Donate to any charity in Canada [ii] Per the Toronto Star, “In a July 2022 GIV3 and Ipsos poll, two-thirds of Canadian adults said charitable funds should be distributed within 10 to 15 years of receiving tax credits, with 36 percent wanting to see the funds spent within 2.5 years.” [iii] Several quotes taken from https://www.classy.org/blog/giving-quotes-inspire-nonprofit-community/
Photo by Brett Jordan on Unsplash