Summary for our 2/1 session is available in the DPP resource library and also below. With many thanks to Pratik for making it available to all of us:
Summary of the February 1 Lunch Analysis with Professor Mark Ottoni-Wilhelm on ‘Declining number of donors: What we know and what we need to know but don’t’
This month, Donor Participation Project (DPP)’s Lunch Analysis, which is a monthly brainstorming session and scholarly discussion on how to increase donor participation in nonprofits, featured Professor Mark Ottoni-Wilhelm who shared his invaluable insights and research on Declining number of donors: What we know and what we need to know but don’t.
Background of the Speaker
Mark Ottoni-Wilhelm is a Professor of Economics at the Indiana University–Purdue University Indianapolis (IUPUI) and an Affiliate Professor of Philanthropic Studies at the Indiana University Lilly Family School of Philanthropy.
Professor Ottoni-Wilhelm’s research interests are in the social science of prosocial behavior. His recently published research confirms the importance of the dual-motive theory of charitable giving, investigates whether large fundraising campaigns succeed by shifting giving from other causes, and solves puzzles about how matches work. His work in progress is about the effect of the 2017 Tax Cut and Jobs Act on giving, the relationship between empathy and dual-motives to give, and what adolescents know about their parents’ giving.
Key Takeaways
The Lunch Analysis discussion with Professor Ottoni-Wilhelm focused on declining donor participation from a research and science based perspective. Professor Ottoni-Wilhelm works with data sets generated in the natural world and experiments focused on charitable giving. The objective of the discussion was to establish a dialogue between people who are doing the work of fundraising and people who are doing research about the work of fundraising. The desired result after the discussion is to establish a forum where both kinds of people could work together to generate knowledge to supplement each other’s work.
Philanthropy – The traditional definition of philanthropy is voluntary action for the public good. A better way to define it would be voluntary action to produce a collective good or service. From the viewpoint of economics, collective good is something that everyone can enjoy and once the environment for collective good is established, everyone benefits from it. Fundraising and philanthropy are examples of work that is directly generating these kinds of collective good.
Collective Good – Collective good includes helping people in need, family and youth services, education, environment, arts, etc. Provision of collective goods is central to what it means to be a human being – we cooperate together to produce collective goods. Fundraising engages directly in what it means to be a human being.
Giving Data – Giving has roughly been around the figure of 2% as a percentage of the U.S. GDP. This giving is divided into 2 basic kinds of collective goods – giving to religious congregations and giving to charitable organizations. The latter is more than the former in terms of dollar value and it has increased from around the year 2000s to about 1.5% of the U.S. GDP as of today.
However, the number of people providing these collective goods is going down, i.e., there has been a decline in the number of donors. This first became apparent after the Great Recession (circa 2008). It is not being offset by other kinds of giving such as informal transfers to family members, parents giving to children or children helping out parents. Neither is it offset by crowd-funding. There is evidence that the declining number of donors can be attributed to generational succession. A higher percentage of older people who voluntarily gave to produce these collective goods are being replaced by younger people who are less inclined to give. This data is age adjusted and also income growth adjusted. Some part of the decline in the number of donors can also be attributed to income and wealth changes such as income stagnation and more debt in recent years as compared to the older generation.
Tax Policy – Tax policy is also another cause for the decline in giving. The Tax Cuts and Jobs Act of 2017 created a disincentive to give. The decline is mostly attributable to the reduced amounts that people gave and not necessarily their participation. There is however a normative argument about participation embodied in the tax policy which is, incentives based on deductibility signal a social value of giving but this is applicable to only 10% of Americans.
Matching – Research suggests that matching donations increases the amounts received by charities mostly because of the lead donor who provides the matching funds. The checkbook amounts given by follower donors also increases but only modestly. Increasing the match rate does not increase the checkbook amounts by much.
Seed Money – Research and evidence has shown that seed money increases amounts received by charities and helps to raise more funds as compared to matching. In case of an opportunity where a donor provides you an option to use a certain amount as either seed money or matching, evidence suggests that it is better to use the amount as seed money since it will raise more funds than the matching.
That said, matching may make the lead donor feel more valued and involved. One alternative that could be explored is to split the gift into matching as well as seed money and do an experiment so that you retain the additional value given to the lead donor as well as learn whether using the gift as seed money could be more impactful.
Social Pressure – Research suggests that social pressure increases amounts given but social pressure-induced giving reduces the well-being of donors and makes them less likely to give again.
Heterogeneous Effects – There is heterogeneity in these facts and data. Effect is not one size fits all.
Dual Motives of Charitable Giving – There are 2 broad classes of motives as to why people give to charities – collective good benefit and private good benefit. According to the collective good benefit theory, donors really value and are focused on the output provided and the work done by the charitable organization. On the other hand as per the private good benefit theory, donors themselves feel that they get a benefit from being the ones who contributed a gift input or an amount to the charity.
These private benefits could be internally oriented benefits such as it could reduce the guilt a person feels from not giving to the organization or it could be based on the person’s sense of identity or duty or own values. It could also be based on reducing the distress that the person feels by seeing another person in need or the distress caused by the fundraising message or just to feel better and reduce sadness. The private benefits could also be socially oriented such as reducing shame or for social approval.
A well-crafted fundraising message would focus on all aspects of the collective good benefit as well as private good benefits.
It is not about Donors vs. Non-donors – Most of the data collected on the declining number of donors can be related to giving at a specific point in time. This sets up a perception that there are donors who will respond and non-donors who won’t respond. This view may not be accurate. The important distinction should instead be frequent donors vs. seldom/time-to-time donors. Research has shown:
– Only 33% of Americans give year-in-year-out to the same purpose.
– 17% of Americans give year-in-year-out but switch purposes every year, one year could be helping people in need while another year could be helping family and youth services.
– 37% of Americans are seldom or time-to-time donors. These people give every other year or even less frequently than that. This is the important group to focus on in terms of donor participation.
– Only 13% of Americans did not give to a charitable organization at least once in an 8-year period.
This is why we need to shift our thinking away from Donors vs. Non-donors toward Frequent Donors vs. Time-to-time and Seldom Donors. The question then becomes how to get the time-to-time or seldom donors – people who are open to giving – to be more regular in their giving.
What we don’t know
(1) Are matches hurting long-term donor participation?
We know that matches do not work primarily as a price effect. If the only motive to give was the charity’s output (work done by the charity) then matches would work as price effects, i.e. matches would act as an incentive to give more and double the impact, but it does not work this way. Evidence suggests that input motives or private good benefits are more effective in terms of how people respond to matches but we don’t know for sure which input motives are at play. It may be social pressure for some people while it may be guilt for other people.
Matching can reduce subsequent giving after the match is withdrawn. This is because if matches are working through an input motive like guilt and social pressure (which we don’t know for sure) then it makes sense that once the guilt and social pressure is removed, giving would also drop. This is why it is important to find out how matches are working because it could be that matches are hurting efforts to establish long-term donor participation.
(2) Emotional mechanisms and long-term donor participation
Responses to fundraising messages may have positive emotions like empathic concern that is theoretically linked to charitable giving, as well as negative emotions that are linked to input motives such as guilt, distress or sadness. We know very little about how standard fundraising messages generate emotional responses or about operationalizing components of messages to generate specific emotional responses.
It may be very difficult to craft a fundraising message that emphasizes and makes a need salient but which does not simultaneously induce negative emotion (since the need is unmet). Research has shown that successful fundraising emails do increase empathic concern, but simultaneously and unintentionally also increase distress, sadness and guilt, so much so that they reduce the participants’ willingness to make a long-term connection with the charity. Therefore, understanding these emotional responses to fundraising messages is crucial for long-term donor participation.
(3) Next generation and transmission of donor participation
While role modeling charitable giving works in the lab, role modeling is not working in naturally occurring family settings. This is because adolescents do not know very accurately whether or not their parents give to charitable organizations. If a parent gives to charitable organizations, it’s a 50-50 chance that their adolescent knows.
What should be done then? Some organizations such as the Heifer Project International have introduced Read-to-Feed Programs to draw younger people into the work of the organization through reading. Many local nonprofits and schools also do Read-A-Thons to generate awareness in adolescents and children.
Conclusions – what can fundraisers do right away?
– You can evaluate designing fundraising messages through the dual-motives lens. You can ask yourself whether the message is making salient the collective good and/or the private benefit – evaluating the output of the organization versus the donor’s reason to want to be the one to input to the organization.
– You can evaluate your fundraising messages through an emotional response lens. This can be done quantitatively by measuring the emotional responses with a survey along with statistical analysis. It can also be done qualitatively with focus groups and/or just introspection – having a look at these messages and trying to intersect what emotions you feel rising within. Another option could be encouraging the act of listening to your donors by conducting interviews as it makes them feel heard, valued and respected, and in turn you will also understand more clearly what they care about and tailor your messages back to them.
– You can make long-term donor participation a top-priority metric by re-focusing the trade-off between immediate fundraising results and long-term donor participation.
– Work with donors who are interested in engaging their children in the practice of voluntarily giving to provide collective goods.
– You could form a partnership with a researcher and get started by asking questions about the data you have already collected in the course of your work. This starts a process of going back and forth to arrive at questions of mutual interest which would ultimately help in co-producing the knowledge that we don’t have.
– If you are interested, you may also attend the Science of Philanthropy Initiative Conference on September 20-21, 2023 in Chicago whose objective is to bring together researchers and fundraising practitioners and engage in discussions and try to form partnerships.
The above discussion was followed by an open session with inputs from DPP members who shared their knowledgeable insights and experiences.