Donations in a Questionable Economy

I'm way behind in my blogging, so this post is overdue.  It's another long one - I hope to blog more frequently, and make my entries shorter (eventually!)  But I thought this is an interesting topic - you can't open a paper or watch the news without more speculation about where the global economy is headed, and this has always had an impact on charitable giving.  Plus, the federal government just released their annual budget, and it's got one (!) mention/incentive for charitable giving.

There’s always debate about what happens to giving during an economic slowdown.  While generally, statistics show that giving goes down as people devote more of their income to pay for increasing expenses, we also know that in geographical areas where the economy is lagging, the rates of giving per capita are often the highest, and remain high in good times and in bad.  Newfoundland and Labrador is a great example of this – it’s a province that has struggled economically but consistently has one of the highest rates of charitable giving per person year after year.  Having grown up there, I have some theories about economics and giving, which I think are relevant to our current economic uncertainty worldwide.  Keep in mind that I don’t have data for all of this – some of it is speculative and based on personal experience. 

Charitable giving is built on the sense of community, not on one’s economic situation.  People with fewer assets tend to give a greater proportion of their income as donations, while wealthier donors give larger gifts, but the proportion of their giving to their income or assets is less than those with less in their pockets.  I can say from experience that the residents of Newfoundland and Labrador enjoy a strong sense of community – they support each other through hard times, and celebrate each other’s successes.  Part of this means sharing resources with each other, to take care of one another directly and ensure no one gets left behind.  Giving to charity is a natural extension of this – you give to charity to help out those around you.  We also know that people don’t tend to give rationally – emotion leads to compulsion.  While we like to think of ourselves as highly logical in our decision-making, we tend to give with our gut: when you see images of people’s homes and livelihoods swept out to sea in a natural disaster, your reaction is to help – you probably don’t need to think very hard about why.

So, my theory is that giving continues in areas where people are affected by economic slowdowns.  When some people lose their jobs, others in the community reach out to help.  However, large gifts will dry up – those who think about giving and treat it as an investment look at their dwindling returns on the market and make a rational decision about affordability.  Overall, I have no doubt that giving trends downwards during an economic slowdown, but I think that there exists interesting pockets of communities where smaller, individual gifts go up.

In an earlier blog post, I made a comment about how our tax system continues to reward those who give a lot, over those who give a more average amount.  In the most recent federal budget of February 26th, I saw this situation exacerbated.  A few years ago, the government eliminated the capital gains taxes on gifts of publicly-traded securities (stocks, bonds, and mutual funds) to charity.  Great news – and CanadaHelps now accepts gifts of securities online for donors who want to take advantage of this.  The budget added a new feature (and the only real mention of the charitable sector in the 400+ page document) – for donors who have shares that are not traded on a public exchange, they can trade those shares for ones that are, and then donate them, without triggering a capital gains tax again.  This is good, for the few donors who own shares that are not on a public exchange.  But, there are no measures in the budget that help the average joe – those of us who probably don’t own shares that aren’t publicly traded, if we own shares at all.  If my theory above is true, then the average donor gets no recognition from the tax man for sticking it out and continuing to support their community during an economic slowdown. 

Basically, my argument boils down to this – if governments at all levels are reducing their investment in the social fabric of society – in our charitable services and organizations, then they need to also reward those who take it upon themselves to support and maintain our social fabric, especially when it matters the most – when people are facing bleak economic opportunities.