In his 1941 address to Congress, President Franklin Roosevelt envisioned a world founded upon four essential human rights: freedom of speech, freedom of worship, freedom from want, and freedom from fear.
Protecting these rights is the core mission of the Four Freedoms Fund, a group supported by an array of foundations and other donors who want to ensure that immigrants become actively involved in American democracy.
Donors to the fund know their money is supporting pro-immigrant organizations across the country to pay their basic operating costs as well as offer just-in-time responsive grant making for urgent opportunities and other special projects. Donors note that Four Freedoms enables them to access people and strategies that they couldn’t otherwise (without significant time and expertise). While the fund has grown significantly since its founding in 2003, we unfortunately still live in a world where large-scale donations to advance freedoms and social change are the exception rather than the norm.
It is not for a lack of generosity: The nearly 2,000 ultrawealthy households, which each hold $500 million or more in assets, donated $45 billion in 2017. This represents about 12 percent of all giving from living donors. Many ultrawealthy donors express a desire to do more and to support ambitious social-change work.
But the reality is that on average, the ultrawealthy are donating only 1.2 percent of their assets annually. Given that their fortunes are increasing far faster — the Standard & Poor’s 500 has risen 9 percent on average in recent years — it’s clear that money that could go to good works has been left on the sidelines.
Bridgespan recently studied how to encourage a significant increase in giving toward inequities among the ultrawealthy — from $45 billion a year to $90 billion. Such an increase in philanthropic giving could result in eliminating often neglected diseases, securing important civil rights, and increasing social mobility for millions of people.
Our research revealed a series of barriers that make even generous, motivated donors less likely to give to social-change causes, but we have also identified a series of approaches that could potentially overcome these obstacles. First, though, it is important to borrow key themes from behavioral science to better understand why the wealthy aren’t giving as much as they aspire to give.
Risk aversion. Social-change efforts — compared with gifts to more time-honored institutional alternatives like hospitals — often require donors to take on more risk. But research suggests that people are more motivated to avoid losses than achieve gains, all else being equal. So even donors who are motivated to support economic mobility worry about what type of gift will most likely succeed. Ending homelessness is hard and uncertain, so grants to nonprofits working on that cause also seem uncertain. A grant that allows a hospital to buy medical equipment or a college to construct a new building offers both lower risk and lower reward: The results are known but are more likely to be incremental than game-changing. Given the principle of risk aversion, the lower risk-reward option tends to win out.
Confirmation bias. People view new information in ways that conform to their pre-existing beliefs and expectations. Donors may interpret information about smaller, newer, or innovative nonprofits or social movements in ways that reinforce their pre-existing concerns — for example, the belief that nonprofits can be “inefficient” or “not rigorous” about showing results.
Mental accounting. People rarely deviate from spending patterns across expense categories, even when they don’t have explicit budget limits. For example, donors often allocate more money to traditional institutions, where highly established development staff have been building deep personal relationships for decades and are practiced at structuring and asking for major gifts. Donors may not see any incongruity in funding a $50 million building while giving far less to support social-change efforts related to such causes as environmental justice or First Amendment liberties.
Sunk-cost fallacy. It’s unusual for people to shift from the status quo. They prefer to add money, effort, or time to investments previously made, even if doing so is not the best path forward. As in the above, one reason is the decades-long relationships larger institutions tend to have with their supporters. Donors may find it difficult to shift their large commitments away from established institutions to new opportunities.
Choice paradox. An abundance of options can discourage or paralyze the decision maker. The United States has more than a million nonprofits. In our increasingly economically stratified society, donors are less likely to have natural connections to organizations. This helps explain why donors may feel discouraged when faced with too many small options for giving to social-change groups and revert to contributing to fewer but established brand-name institutions instead.
Given these real psychological forces, we challenged ourselves to identify bright spots — in other words, what was working to overcome barriers and unlock generosity among the ultrawealthy. Here are a few pathways to consider:
Aggregate charitable options for donors. Think about the ways investors put money into funds focused on specific approaches and industries. How about using such a portfolio-allocation strategy for one’s charitable giving?
The Four Freedoms Fund is a perfect illustration of the types of funds we need to create on a bigger scale — offering many more options. Four Freedoms enables donors to marshal resources and invest collectively to expand their impact. Imagine if there were such options for many more issue areas and geographies. Just as with investment opportunities, the best aggregated funds offer both expertise and accountability — offering a menu of “only great choices” and reporting on results in a consolidated way. Such funds can therefore overcome barriers associated with risk aversion and choice paradox. Imagine a world where — akin to the private-equity marketplace — donors consistently allocate a much larger portion of their portfolio to a range of funds to suit their issue area as well as geographic and risk preferences.
Create high-impact ways for philanthropists to bet big on improving economic mobility. We know that donors are increasingly interested in preserving the American dream. In fact, 60 percent of American donors who have signed the Gates-Buffett Giving Pledge noted that goal (or words to that effect) in their letters. But too often, they are missing the personal connection to high-potential, community-led efforts. A “community foundation for America” could combine powerful structures that make giving easy on a national scale (think of a one-stop donor-advised fund with low administrative fees) with research and reporting services tailored to donor interests. By working with local institutions, we could funnel more money toward great community-driven solutions.
Give philanthropists access to high-quality services that support their giving. Consider private wealth-management firms, such as JPMorgan Chase and Morgan Stanley. Their relationship managers take a highly personalized approach to connect clients with the right investment vehicles to serve their specific financial needs. The same does not occur on a large scale with charitable giving. Some organizations offer these services to donors who are interested in giving to a specific cause. Others offer highly bespoke advisory engagements but work with only a few donors at a time. Our research indicates that, despite requiring highly individual strategies, many ultrawealthy donors have a similar set of needs that could be met with advisers operating on a greater scale. Such services could counter barriers associated with mental accounting.
Ensure that philanthropists have consistent access to potential grantees that could put their big bets to effective use. Hospitals and universities are practiced at structuring and asking for large grants. (Just look at Michael Bloomberg’s recent $1.8 billion gift to Johns Hopkins as an example.) Social-change-focused nonprofits suffer from chronic budget deficits and have not historically had the financial incentive to ask for such large gifts, much less been prepared to put them to immediate use. This path, too, can help donors with their mental accounting — enabling them to think in new ways about who is “worthy” of a big gift, as well as sunk costs and risk aversion.
These are but four of many ideas. We hope this new study will not just encourage philanthropists to research the pathways for giving more to social change but also inspire them to start giving more to the social-change issues they care about most. n
Susan Wolf Ditkoff is a partner and co-head of Bridgespan’s philanthropy practice. Alison Powell is senior director for philanthropy there. They are co-authors of “Four Pathways to Greater Giving,” a new report based on research underwritten by the Bill & Melinda Gates Foundation.