Giving takes a backseat in recession

North Americans allocated a smaller share of their assets to philanthropy in 2009 than in 2008. Inversely, wealthy individuals in Europe, Asia Pacific, Latin America and the Middle East increased their charitable giving, the report says.

Canadian financial experts say that the North American lag is only partially due to a lack of spirit, and there are far greater demons responsible for this trend. They chalk it up to tax policies, a shrinking HNW community, a lack of leadership, and the root of all evil: the Great Recession.

“Canadians pay more taxes and as such often feel they are ‘paying their share’ through progressive tax rates,” says Mike Macdonald, vice-president, consulting, Weigh House Investor Services. “The sense that government is handling the redistribution of wealth may create a sense that individuals do not need to step forward.”

The recession remains a stiff contender for the number one reason for lagging North American charitable donations.

“I also think the ranks of the HNW community have been thinned out as investment portfolios, real estate and incomes have shrunk substantially for many,” says Macdonald.

Curt Hanselmann, a financial advisor in Calgary, says the culprits in general are the economy and a dim outlook.

“When people make less, they reduce philanthropy, incorrectly seeing it as a luxury or a discretionary expense,” says Hanselmann. Most people don’t understand the tax incentives to giving, and advisors can play a role in education. “Tax policy is important, but even more important is getting people to understand the tax benefits of charitable donations.”

In Canada a few significant cultural limitations seem to cause the wealthy to hold back.

“Canadians tend not to have the type of huge ego that may make a wealthy person desire to have their name on a significant building or wing of a hospital,” says Macdonald. “I believe it is much more prevalent in the U.S. to attract large donations in return for naming rights, than it is in Canada.”

It wasn’t until the last decade that banks and investment firms focused on charitable giving as part of the wealth planning process. They are now shaking their offertory boxes more enthusiastically.

“The creation of specialty positions for philanthropic experts at the various wealth management firms means that high net worth individuals now get better information on how to donate and how to select a charity to support,” says Macdonald.

The idea finds resonance with Hanselmann who says advisors should find ways to encourage regular folk to support charities.

It is equally critical to identify worthy charities that feed hungry mouths more than egos of those who make “feel good” donations, he says.

“It really is a crime the amount of money that some of these big charities pull out of a community in the name of ‘ending breast cancer’, or ‘stopping X in its tracks’, when in fact little if any of that money finds the target,” says Hanselmann who promotes charitable giving actively and regularly among his clientele.

Many high profile individuals donate significant funds but choose to remain anonymous. While the thought of not wanting to appear to be seeking recognition for a charitable act is noble, it results in a shortage of leadership for philanthropy. Some charities are now trying to change that.

“More philanthropic leaders are stepping out of the shadows at the behest of the charities to show others that they too can be a part of the philanthropic community,” says Macdonald. “Not surprisingly, as one CEO announces a donation, then friends offer support and rivals do not want to appear to be uninvolved and announce their own donations.”

Of course, one need not be a Warren Buffet or Bill Gates to practice charity. Even the average donor can create their own legacy to charity with a very simple strategy, says Edwin Wong, certified financial planner, Canfin Financial Group.

“As long as the donor is insurable, they can give the gift of a life insurance policy by making any charity the beneficiary,” he says.

The subject of philanthropy rarely fails to touch a philosophical cord.

“Altruism and charity is an amazing feat for any human being to achieve,” says Richard Knowles, financial planner, R Knowles & Associates in Vancouver. “The introspection and character it takes to adopt this is lauding and difficult to attain…like those achieving any greatness with sacrifice.”

The more hardboiled, however, say it is wiser to cure the disease than to treat the symptoms. The great American industrialist and philanthropist John D. Rockefeller once suggested charity as a cure for poverty is itself damaging.

“Charity is injurious unless it helps the recipient to become independent of it.”

(07/16/2010)