Over the next 20 to 30 years, tens of trillions of dollars will move from baby boomers to younger generations.
Estimates put that figure at around $30 trillion while, in the UK, £5.5 trillion transferred between generations by the end of 2022. Plus, an increasing number of socially mobile millennials are earning significant amounts of money. In short, the next generation of younger donors has the potential to become the major donors of the future.
Key drivers for next-generation philanthropists
If we are to nurture these future philanthropists, we need to understand their motivations and their concerns. How predisposed are they to donating, and how is the current economic crisis impacting them in this area? A report from Barclays Corporate shows that young people donate most often to charity overall and are the highest users of all donation channels. The 18-24 group come out on top, with 90% of this demographic donating to charity over the last 12 months, compared with 80% of UK adults overall. It is crucial to engage now with these high earners, early in their giving experience, to create a firm foundation for philanthropy that will see them through the distractions of later life.
A key characteristic of the emerging generation of philanthropists is a greater focus on ESG/impact investing. As The Beacon Collaborative’s Giving Experience Report explains, the younger generations are much more vocal about systemic issues such as race, gender, and the environment, and more conscious of the net impact they can make in these areas through their lifestyle choices and resources. They are therefore keen to push the boundaries of traditional philanthropy with a greater use of impact investing or social entrepreneurship, and co-funding opportunities in a quest to achieve both profit and purpose. Social impact investing has strong appeal as it enables innovative and results-oriented investment with the potential for capital to be recycled for other opportunities. One in every four dollars in global investments now is Socially Responsible Investment, investing in the best ESG performers.
Philanthropy as a way of life
It seems that the next generation of philanthropists is much more inclined to see philanthropy as a way of life – an expression of themselves and their family values. They are pioneers, looking to strike the right balance between the traditional models of philanthropy, which have been passed down from the generations before, and adopting a more innovative, holistic approach. In a more obvious and intentional way than many of their predecessors, young philanthropists are also blurring the lines between their investment initiatives and philanthropic activities. In investor and business families, the younger generation is often the driver for impact investing, regarding this as a means of effectively integrating financial, environmental and social goals.
Impact for this audience is personal and often small scale, according to The Beacon Collaborative report on young givers. For example, meaningful purpose comes from arranging a successful charity event or knowing that a financial donation has contributed to something directly. The opportunity to change the course of an individual’s life for the better is a key motivator.
Modern philanthropists are also drawn to structures for managing their giving that are easy and flexible to use. A donor-advised fund (DAF) is much less bureaucratic and expensive to run than a traditional charitable foundation or trust, and can facilitate a more innovative approach to giving. For instance, by investing DAF assets for impact, donors can align their impact investment and grant-making goals to release more resources for addressing social and environmental challenge. A DAF permits gifts in cash, property or shares, and anonymity if wanted.
So, the new philanthropists are driven to positively impact the issues they are passionate about, but, as with all philanthropists, they have challenges to overcome. Many are still in the wealth creation life phase and are working towards a financial goal, which may make it difficult to justify significant donations until that goal is reached. The uncertainty created by the current economic crisis will not be helping.
Another obstacle is a lack of trust that charities will steward their gifts well. The Barclays report cites this as the second highest factor preventing charitable donations, with 32% of those surveyed claiming this. Financial transparency, reassurance that donations are going to a worthwhile cause, and clarity over how they will be used are vital for building young philanthropists’ confidence to give.
Young donors can also be concerned their donations will make little if any difference given the overwhelming scale of some of the issues they care about. It’s important for them to know they have made a tangible and visible impact. Hence the tendency for them to give to individuals more than organisations.
The value of community and networks
Throw into the mix a legacy of secrecy and fear around money that previous generations have sometimes unintentionally passed on, and it’s easy to see why the philanthropic journey can be lonely and difficult for young philanthropists. How can we come alongside them to better understand these challenges and provide effective support? Building a community is key; a real strength of young philanthropists is their appetite to learn from and collaborate with peers, being more willing to tackle big social issues together to create greater impact.
Knowledge networks are also emerging. They provide a safe and neutral space where funders and fieldworkers can come together on an equal footing to share learning about the issues and best practices that will support good giving decisions.
This is an exceptionally challenging moment to be a young philanthropist; we are living through particularly turbulent times and a highly volatile economic environment that is not conducive to investment of any kind, let alone social entrepreneurship. Yet the passion and focus of this emerging generation point to an exciting future for philanthropy, one that builds on community and collaboration to create meaningful impact.
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