From the January 2009 issue of Wealth Manager Web • Subscribe!

BY THE NUMBERS

What do we know about wealthy individuals and their charitable inclinations? Quite a bit, actually, and perhaps far more than is generally recognized. But much of the knowledge base on the intersection of the high-net-worth set and philanthropy is of relatively recent vintage.

Philanthropy claims a long history in the United States, as does the study of altruism overall. But if examining how and why the rich give is familiar terrain, no one will confuse the increasingly detailed analysis in recent years with the inquiries of yore. The golden age for researching how the wealthy practice philanthropy is, well, now! As philanthropy has gone mainstream, the quantitative focus on giving has increased.

One reason: demand is rising for more details. No wonder, then, that academics, consultants and the non-profit sector are digging deeper in search of better answers on everything from motivations to demographic trends.

The clues are everywhere that ours is a new and productive era of investigation. Consider that the widely quoted "Capgemini/Merrill Lynch World Wealth Report" began chronicling the planet's moneyed class in 1997, but it took another decade before the popular research project focused on individual philanthropy. More substantially, the first scientific random-sample-based study of philanthropy in high-net-worth households arrived in a 2008 academic paper ("Philanthropy Among High-Net-Worth Households") from the Center on Philanthropy at Indiana University.

Studying charitable trends among the affluent, to the extent it's been studied at all, has typically been a broad-brush effort. "A lot of the research on philanthropy hasn't really looked at different segments of philanthropists," says Katherina Rosqueta, executive director at the University of Pennsylvania Center for High Impact Philanthropy (CHIP). But that's changing, as the rising number of research efforts on this front illustrate.

But why now? "Philanthropy has become so much more a part of our mainstream culture and the wealth experience generally," says Claire Costello, an executive in the Bank of America's philanthropic management national practice. "It's in the foreground."

Philanthropy, in short, has gone mainstream. It's evident in the headline-grabbing news of a few years ago that Warren Buffett will give billions to the Bill and Melinda Gates Foundation and in the advancing tide of charitable actions among less notable wealthy givers overall. That invites a closer look at how they give, why they give, and all the related issues that remain poorly understood when it comes to altruism in this elite demographic.

Whatever the reason, probing deeper with intelligence gathering represents a boon for wealth managers. Indeed, today's financial professional has access to quantitative and qualitative research that's far above what passed as state-of-the-art say, a decade ago. In fact, there's so much new research of recent vintage that it's impossible to summarize. Instead, here area few highlights to whet your appetite.

Let's start with some broader context: Contributions by individuals overall in the U.S. rose by roughly 6.5% a year for the 10 years through 2007, according to Giving USA Foundation. Donations by individuals comprise the lion's share of the giving--averaging roughly three-quarters-plus of total charitable contributions in the U.S. since the mid-1960s.

A large chunk of individual donations comes from the wealthy. Roughly 10% of tax filers--those with incomes of $100,000 or more--account for 51% of the estimated total, Giving USA advises. Meanwhile, families worth $5 million or more give 28% of charitable dollars, according to a 2003 study by the Social Welfare Research Institute (SWRI) at Boston College.

There's a growing body of research that links higher family income and/or net worth with higher rates of giving. SWRI's 2003 study advises that virtually all (98.6%) families with incomes of $1 million-plus made donations of some amount. And as family incomes rise, so too does the rate of giving (and the average amount donated) on a family basis.

That's no isolated finding. As wealth increases, so too does the dollar value of household charity, according to the December 2007 edition of the "Bank of America Study of High-Net-Worth Philanthropy," which uses the research conducted by Indiana University's Center on Philanthropy. Total mean giving in 2005 was $25,264 for households with net worth between $1 million and $5 million, this research shows. Using that income group as a benchmark reveals that households with five- to 10- times more wealth (net worth between $5 million and $50 million) equate with total mean giving that's more than three times higher. And household wealth that's 10- to 50-times greater accompanies total giving that's 45-fold higher.

Relationships are comparable for both religious and non-religious donations. "Total secular, and religious giving are all statistically correlated with wealth," advises the BoA study. "When a household's wealth increases, charitable giving also increases."

A recent study of "millionaire households" by Northern Trust cites similar trends. Charitable donations rose along with wealth levels for both 2005 and 2006, according to "Wealth in America 2008." In 2006, for instance, individuals with $1 million to $4.9 million of investable assets averaged donations of $8,100. Average donations are more than 180% higher for the $5 million to$9.9 million group; for the $10 million-plus set, average donations are higher by more than 300%.

Another study--reportedly the first statistically significant scientific investigation of giving by the wealthy--also finds that giving rises dramatically relative to income and/or household net worth. In addition, the vast majority of wealthy households (98%) are donors--well above the rate for the U.S. population (67%), according to Prof. Patrick Rooney and Heidi Frederick, authors of the Indiana University study.

The trends become more nuanced the closer we look at the charitable destinations. Separating donations into secular and religious categories, for example, shows that secular-oriented charity grabs the lion's share of the dollars. For the $1million to $5 million set, for instance, median secular giving was nearly $19,000 in 2005--more than one-and-a-half times more than mean giving tied to religion for this group. As household wealth rises, so too does the bias for secular versus. religious giving. For the $50 million-plus group, secular-focused charity outpaces religious-oriented giving by more than five to one ($1 million as opposed to $159,000).

If some think the extent of giving by the well-heeled is limited to writing checks, the BoA study offers ammunition that argues otherwise. More than 80% of households with a net worth of $1 million-plus volunteered time for charitable causes. The most generous group for time volunteered was also the wealthiest: Households with $50 million plus, of which nearly 37% donated more than 200 hours in 2005.

An update of the BoA study, set for release this month, finds that philanthropy for the high-net-worth demographic is becoming a "much more integral part" of their overall wealth, says BoA's Claire Costello. One clue is that the wealthy increasingly consult on philanthropy issues with their accountants, attorneys and wealth advisors (See table at end).

For all the growing emphasis on philanthropy, there is still a segment of the wealthy who are reluctant to invoke the "p" word when describing their altruism--according to a recent survey of 33 individuals who gave at least $100,000 a year, with an average gift of $1.5 million. The majority of participants "revealed that they did not yet consider themselves philanthropists, despite giving an average of almost $1 million annually," reports "I'm Not Rockefeller," published by CHIP last September. One of the survey's "biggest surprises," says CHIP's Rosqueta, is the "discomfort and in some cases ambivalence that many of these folks had with even thinking of themselves as philanthropists."

Why the hesitation to use the philanthropist label among a group giving $1.5 million a year on average? Rosqueta says there may be several reasons. As stewards of new wealth, many in this set have only recently joined the ranks of the privileged few, and there's a learning curve for giving on a higher scale. Another explanation for standing clear of the "p" word among CHIP's survey respondents: The absence of a personal strategy for dispensing money in a thoughtful way. Rosqueta believes that, in part, this is an indication of a lack of confidence in making decisions on charitable issues. As she explains:

"They're pretty successful people and it's unusual for them not to be confident about making decisions. But philanthropy is a different area, a different beast than business decisions. Everyone from Andrew Carnegie to Warren Buffett has talked about how much more difficult it is to give money away wisely than it was making money through their business. Part of that discomfort and ambivalence may come from a recognition that they do not have the information, the framework and the overall confidence in doing this as well as they have done with their business decisions."

If there's a shortage of conviction on how to give or how to structure one's philanthropy, that hasn't slowed the penchant for giving. But we must be careful in assuming too much from numbers in a survey. Yes, 98% of high-net-worth households are donors, according to the Center on Philanthropy. But the large gifts come from a relative handful of people, says Rooney, a professor of economics and philanthropic studies at Indiana University and co-author of the aforementioned study of "Philanthropy Among High-Net-Worth Households."

And there are other quirks in the data. Rooney's study, which crunched numbers on 1,400 wealthy households, finds that donors under the age of 50 give less than people in their 50s, 60s and 70s. The peak for giving comes among those in their 60s. "We don't know if that's because people in their 80s are less wealthy, or if people aren't fundraising with older folks as much," he notes.

Another finding in Rooney's paper: Giving tends to go up with the level of education, but not consistently. The dollar value of charity rises with education for the U.S. population overall. That holds for wealthy individuals with bachelor and graduate degrees. But there's an "interesting anomaly" in the trend, Rooney notes. Among the high-net-worth set, those with no more than a high school education give more than do those with an associate degree or those who attended college but did not earn a B.A. or higher.

Another curious bit of data: Giving by the rich tends to grow in line with the number of children in the household--but only up to the point of four children. "When you have five or more, giving plummets, on average," Rooney says. Meanwhile, the numbers in Rooney's study suggest there are also differences in giving based on race and ethnicity. But once you control for income and wealth, statistically the differences for race and ethnicity "go away," he adds. The implication: Apparent differences in giving among different groups are really a function of wealth and/or education.

The bottom line: It's (still) all about the money, and education. That's hardly shocking news, although the dismal science is catching up with what many observers of the rich and famous have suspected all along.

James Picerno (jpicerno@sbmedia.com) is senior writer at Wealth Manager.

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