The Effect of Inflation on Charitable Giving

The success of charitable giving depends on a variety of positive factors. People give when they feel the environment for giving is good. If donors feel comfortable with their personal financial situation, they will assist charitable organizations. If the economy moves in a positive direction, the inclination may be to make larger gifts of financial resources. 

When negative economic forces affect personal finances, the concern of self-preservation of assets overshadows the desire to give. The Pew Research Center recently found that 70% of American adults view inflation as a major problem in the United States. Will the news of continuing increased inflation affect charitable giving?

Inflation is a general increase in the prices of goods and services in the economy over a time that corresponds with a decrease in the value of money. It is a sustained upward movement of prices while purchasing power is decreasing. It can reduce discretionary spending and cause demand-pull or cost-push inflation.

Inflation also causes an unsettling effect on prospects as potential donors. Individuals are not as motivated to give or consider increasing gifts when the economy is volatile. 

According to economist Jamie O’Halloran, there are three ways in which inflation is likely to affect charities.

1. Rise in costs. If wage increases are eliminated or reduced, nonprofits may face staff departures. 
2. Income. As costs rise, the income of charities will struggle to keep pace. Charity income may fall because of economic uncertainty, value of the dollar and high inflation. Donations that continue to be given at the same level will be less over time. 
3. Changes in demand. The vulnerable will be hit the hardest by inflation and this will drive up demand for charitable services due to the cost-of-living squeeze. As inflation continues, nonprofits need to adjust their income projections and service model. 

The Charities Aid Foundation, which has studied the impact inflation has on charitable giving, notes that as the cost of goods and services rise over time, it devalues what nonprofits can do with the level of income. Donations lose their value during inflation and must be increased to keep pace with inflation. Rising costs will more likely be an issue for larger charities that require greater numbers of donors, making them more vulnerable to depreciation in the value of donations.

As prospect purchasing power dips, so does donors’ ability to make charitable contributions, according to the San Diego Foundation. The concept of inflation can play a significant psychological effect on their attitudes toward giving. The Door County Habitat for Humanity news states that we still may be months away from seeing the impact record-high inflation would have on charities.

Concern is not only for the quantity of funds given, but the number of donors that give to nonprofits, as this figure has continued to drop over the last 20 years. 

Donors do not recognize that inflation decreases the purchasing power of their donations. It is important that nonprofits now review the standard donation levels on appeals and websites to ensure amounts requested are in line with costs incurred delivering services. What is also troubling is the fact that stock market declines might slow giving as donors feel less wealthy. You need to educate prospects and donors about the state of the economy and how it is impacting your nonprofit. Thus, there is a great need for larger gifts this year. 

The effect of inflation on charitable giving is real and here to stay. Budget well and be realistic on the revenue side, plus hold expenses in line as much as possible. With so many negative and variable factors at play in 2022, the environment for giving is very turbulent. Understand this fact now and take steps to prepare for the unpredictable balance of this year.