The interconnection of the global financial system has seen philanthropy evolve and become a mainstream financial activity. Gone are the days when philanthropic giving was the preserve of the filthy rich. More and more people are giving out, on a community level, all in the effort of improving the world and making it a better place.
Similarly, philanthropy has provided a way for financial professionals to invest in the long-term on a broad scale by devoting their time, skills, and resource to worthy causes like education, health, and human services.
Philanthropy in finance is simply the act of charitable giving towards a worthy cause. Philanthropic organizations and individuals play an important role in mobilizing financial resources that go a long way in improving human welfare.
While philanthropy dates back to 347 B.C, it’s only in recent years that it’s become an important aspect of the financial sector. Likewise, the financial industry has evolved to become one of the most philanthropic sectors in the burgeoning digital world.
In 2019 alone, U.S organizations gave out close to $440 billion, marking out a new record of charitable donations. The amount has been increasing over the years. Famed billionaire Bill Gates and his wife Melinda Gates are best known for spearheading philanthropic donations that have gone to many causes worldwide, focusing on improving human welfare.
Philanthropy’s financial contribution increased ten-fold over a decade, underscoring the need to make charitable donations that have the potential to transform the human race. While it is hard to accurately quantify philanthropy contribution to development, it is believed to have increased from $3 billion in 2003 to about $29 billion as of 2013.
Most philanthropic donations often end up in religious organizations, given their close ties to communities. While 28.5% of such donations go to religious groups, 14% end up in educational groups, with human services groups coming in third at 12%
Financial Advisors and their Role in Philanthropy
Philanthropy Consultant has evolved to become an important component of financial planning services. Charitable giving through donor-advised funds is on the rise as advisors continue to provide clients with valuable advice geared towards charitable giving.
Likewise, some financial advisors are actively involved in charitable causes. Backed with vast experience, they often demonstrate to clients that they have personal experience with the non-profit sector.
Similarly, many financial advisors are people or business owners who play an active role in their communities. Such people get involved in local charities that allow them to deploy and use their skills to impact the community.
Types of Philanthropy
There are many ways in which an organization or an individual can tap into the world of philanthropy and help in a given cause. The style or approach deployed in philanthropy varies a great deal giving rise to various forms of philanthropy.
Charitable Philanthropy: In this case, individuals or organizations make unconditional donations to non-profit organizations or community-based organizations. Such donations mostly target organizations engaged in social welfare activities that help the poor. The philanthropist can have an upfront assessment of the course or project or have little follow up.
Grant Making Philanthropy: Unlike charitable philanthropy, grant-making philanthropy comes with conditions attached to them. The conditions are usually given to the organizations responsible for overseeing a given project. Organizations or individuals that engage in grant-making philanthropy follow up on projects they finance by going through reports submitted and visiting actual projects.
Strategic Philanthropy: It is similar to grant-making philanthropy but with a selection criteria line, against a clear strategy. Philanthropists who engage in strategic philanthropy articulate expected outcomes and impact, which they strive to attain with any project.
Operating Philanthropy: In this case, an entity is set up to run charitable programs as articulated by philanthropists. In return, a foundation is set up that channels money to implementing set out programs or projects exclusively. Few, if any, grants are made outside the organizations.
Venture Philanthropy: It is a high engagement and long-term approach whereby philanthropists invest in projects that support social purpose organizations and, in return, help them maximize their social impact. In this case, philanthropists are willing to take risks that many investors are unwilling or prepared to take.
Investment Philanthropy: it is a special type of philanthropy whereby philanthropists seek to build and grow organizations by investing in the long-term. In return, the philanthropists can look for both social and financial returns.
Philanthropy and Financial Planning
The different styles and approaches make philanthropy a preserve for any person with the heart of giving, regardless of wealth or social status. The urge to grow and develop society’s social fabric should be the driving force in engaging in any form of philanthropic giving.
However, any philanthropic giving should be structured to maximize impact and, in some cases, ensure optimum returns for the community or philanthropist. Similarly, incorporating philanthropy in financial planning allows any investor to create a legacy for the future.
Every organization or individual needs to take philanthropy into account when carrying out financial planning. Financial planning ensures sufficient funds are allocated to cater to various projects or programs that can potentially impact the community.