17th
Do Low Income People Care More than High Income People?
I spent a lot of time this weekend doing research on nonprofit fundraising and donor motivations (also my excuse for not participating in the MLK Day of Service… a poor excuse but an excuse nonetheless) and came across some interesting study results.
A study looking at donor motivations found that lower-income people ($50K and under, so we are not talking about the poorest of the poor here) are more likely to identify their top reason for donating to be providing for the poor’s basic needs or helping the poor help themselves. Mid-income and higher-income people ($50K-100K and $100K+ respectively) were more likely to choose making the community/world a better place and the idea that those with more should help those with less.
The same results also held true for education levels, with high school education or less correlating with the lower-income groups and some college or more education correlating with mid-to-higher income groups.
My first reaction was - of course - people who are closer to being poor themselves would be more inclined to give to organizations working directly with the poor. But then I started thinking about the response options more, and also thinking about how I might respond to a similar survey. And I wonder if the response from higher-income individuals is more about looking at the big picture—the idea that I’m not just providing food and shelter to a poor person, I’m changing the world so that there are less poor people.
Another study focused just on high net-worth individuals (net worth of more than $1,000,000 or income of at least $200K—and often much more). As a percentage of their overall giving, donations to organizations that serve the poor’s basic needs was only around 2-4%. However, when ranking their motivations in this study, “meet critical needs” was the highest (followed closely by “giving back to society”). Going back to how their total giving is divided up, the largest percentage by far went to “funds or foundations” (next largest was health). I can only presume that the funds or foundations do work that in some way meets critical needs of the poor. But again, perhaps the foundations are working in a more high-level way to “change the system” rather than just providing food and shelter.
So there’s a lot to think about there. And I think there is a need for both kinds of giving—taking care of the critical needs of the poor today, and working to change the big problems so that there are less people in need of help in the future. I also wonder whether lower-income people could be more pessimistic about wide-scale change, and feel more comfortable giving where they can see an immediate impact.
Speaking of impact, back in 2009 there was some controversy over the microfinance organization Kiva because their marketing materials mislead (or may have mislead) donors into thinking they were giving a loan directly to an individual microfinance customer, when instead the loans went into a big pool (and funds were actually given to the individual customer BEFORE you made your donation). I read about the controversy a bit at the time, but looked it up again this weekend because I thought it was relevant to the issue of donor trust and the use of an emotion-based appeal for fundraising.
I found two excellent blog posts by Sasha Dichter (the Director of Business Development at Acumen Fund and my new blog-crush—see also this excellent talk he gave on impact investing), on the Kiva controversy—an original reaction and then a follow-up to clarify. The crux of what I am trying to get at in all of this research is how to get donors to be more savvy in their giving. Sasha’s point is that a concrete and emotional “ask” is essential for effective fundraising but that this also needs to be balanced with a more rational, strategic (metrics-based?) approach to giving.
As a general rule, donors that are more educated are more likely to ask the tough questions and do the research on an organization before giving. But even then, are higher-income, higher-education donors receiving (or searching for) the right kinds of information? A general refrain that I hear frequently from people who consider themselves to be “informed” donors is that they only give to nonprofits that have low overhead and there is too much waste in nonprofits. In the study of high net-worth individuals, when asked what would cause them to give more to charity, the biggest indicator was if nonprofits spent less on administration (usually followed pretty closely by being able to determine the impact of gifts).
However, if you talk to anyone who has spent any significant time working for or with a nonprofit, they will often tell you they think nonprofits should spend more on things like salaries. In order for nonprofits to be effective, they need to attract and retain top talent. It’s difficult to do that when the pay rate for nonprofit staff can be significantly lower than that of the corporate sector. In fact, if we follow this through logically, the only way that nonprofits can accurately report on the impact of their work (which most donors say is important) is if they have staff with the proper knowledge, training, and time to track and analyze client data. But that’s (gasp) administrative overhead.
How do you translate that knowledge so that it reaches individual donors? If the high net-worth individuals (who in some cases pay someone just to manage their charitable giving) don’t “get it,” what hope do we have of reaching the average Joe (or Jill) who gives $20 to some cause every year?
(I will acknowledge that certain large nonprofits reach a state of bloat not unlike government, with the accompanying high salaries and low work loads. But while these may make the news, they are definitely not the norm.)
Just a few of the thoughts I’ve had as I work with a team of other MBA students on the LiquidNet Impact Challenge. Hopefully I’ll have more to share soon.
