Murray Hill Institute
Newsletter
November 2005
Volume 2, Number 3

Wealthy women?

In late 2003, there was an announcement that a not so well known woman, recently deceased, had left nearly $2 billion to charity. The late Joan Kroc, widow of Ray Kroc, the founder of the McDonald’s restaurant chain, left in her will $1.5 billion to the Salvation Army, a record bequest, plus $200 million to National Public Radio and smaller amounts to other charities. The announcement stunned the nonprofit world.

Earlier, in 1995, the donation of the accumulated savings of an 87-year old Mississippi laundress, Oseola McCarty, made front page headlines too and touched millions of hearts. After a lifetime of hard work, modest living and steady savings she donated $150,000 to a scholarship fund at the University of Southern Mississippi. In her words: “I want to help somebody’s child go to college…. I can’t do everything but I can do something to help somebody. And what I can do I will do.”

Somehow, the world does not associate women with either wealth or formal philanthropy. Most philanthropists of historic note, such as John D. Rockefeller or Andrew Carnegie, have been men. Yet studies have found that women are controlling an ever greater amount of wealth – money that they have either earned and invested wisely or inherited from their family or husbands – and are actively engaged in donating funds to thousands of worthy causes during their lifetime and beyond through their wills.

Learning from Mom

“Charity begins at home” is a motto most Americans have grown up with. Most likely they first heard the term from their mothers. Many mothers have adopted an engaging approach to teaching their children about money, giving, sharing with the less fortunate, and supporting a particular cause. It is referred to as the “three jars” system.

Many children receive an allowance. From the amount a child receives, he or she is taught to allocate that money among three jars. One jar is labeled “savings,” another “spending” and a third “charity.” In a country where the savings rate is close to zero, any encouragement to set money aside is welcome. Whether child or adult, a person always enjoys having discretionary funds to satisfy a sweet tooth, buy a trinket or take in a movie. As for charity, the child is encouraged to search for, examine carefully and select one or two charities and to send them a certain amount of money on a regular basis. In this manner, children learn that even a donation of only a few dollars can have a beneficial impact on the lives of others.

By managing an allowance with specific charitable goals in mind, the child becomes aware, for example, of suffering children dying of cancer, the poorest of the poor in Africa who survive on less than a dollar a day, or abandoned animals in needy shelters, and quickly becomes involved in sharing allowance money with charities that assist them. The child also is taught to use some of the charity jar money to place in the collection basket at church on Sundays. And so, new philanthropists are born.

Philanthropy and wealth

Philanthropy is derived from two Greek words: “philos” which means friendly or loving, and “anthropos,” the word for man. The dictionary defines philanthropy as love of mankind. It follows that a philanthropist is one who seeks to do good to his or her fellow man through expressions of good will. That good will takes many forms but involves giving of one’s means or possessions, or of one’s self, as through volunteer activities.

While women still earn on average about three-fourths of what their male counterparts do and under 60 percent of women are employed versus over 73 percent of men, more and more women are controlling significant sums of money, some of which is used to support worthy causes. Women philanthropists have become more numerous and there is even a Women’s Philanthropy Institute (at the University of Indiana) to be a resource and encourage participation in philanthropic activities. Various groups are being formed among successful women to raise consciousness about charitable endeavors and foster major donations. Also, data show that women are more likely to volunteer than men.

The biblical reference to the donation of “the widow’s mite” bears witness to the fact that women have been generous for a very long time. Today, available data confirm that more substantial sums are being donated by women. But before anyone can give away money, one must have it.

To start, it is worth noting how much wealth exists. In the United States, the answer comes from a quarterly survey by the Federal Reserve which measures “household net worth.” The latest reading, for the second quarter of 2005, showed that American households were worth just under $50 trillion – that is, total assets (real estate, investments, bonds, etc.) less total liabilities (mortgages, consumer debt, and so on) – and has been rising uninterruptedly for nearly three years. Women are believed to control slightly more than half.

Since 1982, Forbes magazine has been compiling a list of “The 400 Richest Americans.” The recently published 2005 edition reported their collective net worth to be $1.13 trillion, an increase of $125 billion from the year before. All but 26 were billionaires and their net worth ranged from a low of $900 million to $51 billion accounted for by Microsoft founder Bill Gates. Forbes noted that Gates’ net worth would be higher were it not for the $28 billion lifetime donations to the Bill and Melinda Gates Foundation, which in turn makes grants to many charitable, medical, health, and educational causes. The billionaire’s wife plays an active role in their foundation.

Among the top ten wealthiest individuals were three women – all members of the Walton family – of Wal-Mart retail store fame. The fortunes of each woman were: $15.7 billion for the surviving spouse of Sam Walton’s son, $15.5 billion for one of Walton’s daughters and $15.4 billion for the widow of the retail chain founder. Indeed, the extended Walton family is the richest in the United States.

In the Forbes 400 there were 47 (identifiable) women with a combined net worth of nearly $157 billion, up from $136 billion the previous year. All but three were billionaires. Their wealth originated from inheritance, ownership of family company equity, and founding and working in one’s own business. Among the self-made women billionaires were the well-known Margaret Whitman ($1.5 billion), who nurtured internet company eBay from its earliest days to a global enterprise, and the TV personality Oprah Winfrey ($1.4 billion), who is very active philanthropically through her own foundation and other charities.

To find out about the generosity of the richest people, Business Week magazine annually examines “The 50 Most Generous Philanthropists.” The November 2004 listing ranked them according to funds given or pledged over 2000-2004, then attempted to estimate their total lifetime donations. The tally showed that total giving over the five-year period topped $38 billion and lifetime donations reached $65 billion.

Not surprisingly, Bill and Melinda Gates topped the list with donations of $10 billion in the last five years. Interestingly, 21 of the 50 were husband and wife teams donating through their foundations. Also, five women individually made the list, collectively donating $1.5 billion in the 2000-2004 time span, mainly to education and the arts.

It should be noted that many wealthy philanthropists prefer to give anonymously. Others enjoy the spotlight and are not at all shy about having their name emblazoned on a hospital wing, library branch or college campus building. However, as a saving grace, sometimes such publicity can spur other rich people to make donations.

Women recently joined the naming game too. A large donation by a successful businesswoman resulted in the first business school in the United States to be named for a woman. An initial pledge of $25 million in 1998 followed by another $45 million a few years later and the Darla Moore School of Business was established at the University of South Carolina.

Who gives and who gets what

In the last week of December 2004, the Wall Street Journal’s “Question of the Day” posed the query: “What percent of your income have you given to charities in 2004?” Among the respondents, only seven percent answered “none,” 55 percent indicated they gave less than 5 percent, and 20 percent gave between 5 and 9 percent. But an impressive 18 percent replied that they had donated 10 percent or more of their income – the traditional measurement of biblical “tithing.”

A key source to determine the basics on donors and beneficiaries is the American Association of Fundraising Counsel (AAFRC) which for the last 50 years has been publishing a “Giving USA” report. The latest edition presents data for 2004 when an estimated $249 billion was donated to charities/nonprofits. This figure represents a statistically significant 2 percent of our nation’s Gross Domestic Product (GDP).

The “Giving USA 2005” report measures giving from four sources: individuals who are living, bequests by deceased individuals, foundations, and corporations. Each year most charitable contributions are made by individuals who last year gave $188 billion, or just over three-fourths of the total. Foundations provided less than 12 percent, bequests accounted for 8 percent, and corporate donations were under 5 percent.

Among the recipients, religion accounted for the largest share, $88 billion or slightly more than 35 percent, education came in second with $34 billion or nearly 14 percent, and foundations received $24 billion or less than 10 percent. The remainder was spread among various institutions such as health charities; human services agencies; organizations that promote public or societal benefits; institutions in the arts, culture or humanities; environmental or animal welfare groups; and organizations engaged in international affairs or international aid.

As noted, corporate donations are only a fraction of individual donations. However, many large corporations offer matching gift programs that match donations of their employees, usually up to a certain amount. Corporate giving per se has generated controversy among certain stockholders who believe that donations come from company earnings and belong to employees and stockholders. Others express concern that corporate funds may go to organizations whose mission they consider objectionable.

Besides cash, donations can be made “in kind.” Any number of goods can be donated to charities that will take them. A few charities actively seek out donations of autos, boats or art objects even though their valuation for deduction purposes has caused significant controversy with the Senate Finance Committee which has regulatory oversight for charities. Corporate donations in kind are also prevalent and involve medicine, food, equipment, and even training for nonprofit executives.

Charities, nonprofits and foundations

As women consider donating, they have a wide range of choices. There are over one million nonprofits/charities in the United States. New ones are started every day, especially after major disasters. To be exact, the IRS recently announced that there were 1,540,554 nonprofits of which 1,010,365 were designated as charitable organizations, including 102,634 private foundations. In truth, there may be many more – or even a lot fewer – because the IRS has no idea how many charities merge or dissolve since there is no reporting requirement for ending operations.

With the exception of churches, all charities and other nonprofits that solicit public support must apply to and register with the IRS which determines their status and eligibility for classification as tax exempt organizations. When approved, they are designated 501(c)(3) organizations. (The number refers to the section of the tax code.) In addition, these organizations must register with state authorities, such as the Charities Bureau of the Attorney General’s Office in the State of New York.

A distinction must be made between nonprofit organizations – which are tax exempt and whose main purpose is charitable or philanthropic – and not-for-profit organizations that pay taxes and may make a profit, but profits may not be distributed to its members. Furthermore, it should be noted that all charities are nonprofits but not all nonprofits are charities. The Red Cross, Catholic Charities and the Girl Scouts are charities but Harvard University, The Museum of Modern Art and the Metropolitan Opera are nonprofits. All are 501(c)(3) organizations so that contributions made to them are tax deductible.

Another key organization in the nonprofit world is the foundation. A foundation may be set up by the very rich or even the not so wealthy to support one or many causes. It may be a fundraising arm of a particular nonprofit to support or fund its special programs, activities or services. The wealthiest foundation in the United States is the Bill and Melinda Gates Foundation, valued at approximately $27 billion at the end of 2004. Next in line is the Ford Foundation worth $11.3 billion, then the Robert Wood Johnson Foundation with assets of $8.9 billion. The 10 wealthiest foundations in the United States held assets in excess of $72 billion at the end of 2004. Under current law, each year foundations are supposed to pay out a minimum of 5 percent of their assets including expenses, a share that many have criticized for being too low and allowing the foundation to keep itself going in perpetuity instead of making bigger grants.

Some consider it a stretch of the imagination to consider donations to museums or the opera as “charity.” To be sure, they are nonprofits and by law are entitled to receive donations to carry out their work. In one prominent New York City museum, a number of art items recently were exhibited with the note “Acquired through the generosity of (name).” One study determined that 95 percent of support for American orchestras came from donations. Surely the quality of life is enhanced by music, art and other culture.

Reputable charities, ratings and revenue raising

Women who are intelligent, caring donors expect that charities be well run, accountable and transparent about their operations so that they can give with confidence. Many do careful research and look for independent evaluations before making donations. To assist in this effort, there are so-called charity watchdogs that do periodic evaluations of charities to determine how they measure against a given set of standards and criteria.

The reports, ratings and evaluations of The American Institute of Philanthropy, Charity Navigator and the Better Business Bureau (BBB)/Wise Giving Alliance are the most widely consulted. The BBB’s Philanthropic Advisory Service provides support and education to donors, handles inquiries and complaints about charities, and supplies a periodic evaluation of charities’ governance, spending, revenue sources, and accuracy and disclosure of basic information.

Some watchdogs apply a rating system and others provide comparisons with similar charities. Moreover, all approved charities and nonprofits each year must file an “information return” with the IRS. Sadly, not all comply. Many of those who file do not provide correct or complete data, and the IRS does not have the resources to do a thorough examination of these returns.

Many charities conduct annual appeals in the final quarter of the year. The fourth quarter also coincides with the awarding of year-end company bonuses so it is a good time to tug at shirtsleeves. (One major Wall Street investment bank has already set aside $9 billion for 2005 employee bonuses.) Furthermore, as Americans’ thoughts turn to Thanksgiving and Christmas festivities, gift giving and sharing readily come to mind. About the same time, a number of publications such as Business Week, Forbes and USNews&World Report feature special articles related to charitable giving. To further reflect on giving, November 15th is designated National Philanthropy Day.

Donations and donor fatigue

Tragic events of the past few years have generated an unprecedented outpouring of generosity by the American people. In the month following September 11th, the Tsunami and Hurricane Katrina at least a billion dollars was raised in each case. The month after Hurricane Katrina, nearly $1.5 billion had been raised by charities assisting victims.

New charities are formed after disasters. A few hundred sprang up after the tragic events of September 11th to help victims and their families. Unfortunately, those charities engaged in other activities often see donations drop off as funds are diverted to where donors perceived an immediate need, a situation referred to as “donor fatigue.”

Philanthropists often make pledges of large amounts with disbursements to be made over a period of time, usually several years. The largest pledges generate gratitude, honors and much notoriety. A few of these donors sometimes cannot or do not fulfill their pledges for a variety of reasons: A recipient charity diverts donations to other than the intended purpose, the donor no longer has the income stream that he or she relied on or the benefactor and the beneficiary have a falling out.

The coming mega wealth transfer

Charitable organizations, ever seeking new sources of funding, are studying the phenomenon known as the “intergenerational wealth transfer.” The 76 million strong baby-boomers – those born between 1946 and 1964 – will soon start to retire. The first of those born in this period become 60 next year. Their thoughts soon will turn to who will get what in their wills.

A report prepared by researchers at the Boston College Center on Wealth and Philanthropy determined a few years ago that the amount of wealth to be transferred to the next generation between now and the middle of this century amounts to a staggering $41 trillion!

Private bankers who deal with high net worth individuals are busy providing clients with “charitable advisors” to render assistance with planned giving, charitable trusts, gift annuities, foundation administration, and other services related to philanthropy. The donor only has to provide money and vision. Women are key targets. Women generally outlive their husbands, inherit wealth and are more likely to bequeath to charity. A husband thinks of providing for his wife and children. A widow usually sees her children well established in their careers and with families of their own and so can afford to allocate a greater portion of her wealth to charity.

Women are more apt to volunteer

In addition to financial contributions, there are many people who do volunteer work and put their time, skills, experience, and good will at the disposal of charities. Every year, the US Department of Labor (DOL) conducts a survey of volunteer activity. According to the latest data, covering the year ended September 2004, about 64.5 million people did volunteer work accounting for almost 29 percent of the civilian noninstitutional population age 16 and over. Though these findings are impressive, the survey counted only those persons who volunteered through an organization and thus are likely to be underestimated. Those who, on their own, perform some voluntary activity, such as driving an elderly neighbor to the doctor, are not counted by the DOL.

The DOL report, “Volunteering in the United States, 2004” concluded: “Women volunteered at a higher rate than men across age groups, education levels, and other major characteristics.” In the period under review, 37.5 million women versus 27 million men volunteered. They spent an average of 52 annual hours in volunteer activities. The trend over the past few years shows that men and women individually donate about equal numbers of hours.

College graduates were more likely to volunteer than persons with less education. Nearly 46 percent of persons with college degrees volunteered compared with 10 percent of those without a high school diploma.

Older persons donated the highest number of hours to volunteering. Those 65 years or more put in an average of 96 hours per year while those aged 16 to 24 years gave only 36 hours. Interestingly, 41 percent of volunteers approached an organization versus 27 percent who were approached by an organization, illustrating some degree of altruism.

Other data from the DOL survey showed that most volunteer activity, 35 percent, took place at organizations labeled “religious” followed by educational or youth service, 27 percent and social or community service, 12 percent. Fundraising activities accounted for most services rendered, but coaching and tutoring were not far behind. Food handling – collecting, preparing, distributing, and serving – involved one-fourth of all volunteering.

Volunteers can offer many services including financial, technical and managerial expertise. Some serve as board members of charities and offer direction, guidance and oversight. Older or retired persons bring a wealth of experience gained in the private sector. Nonprofits are quick to acknowledge their mission could not be fulfilled without the work of volunteers. The donated expertise would be very costly to purchase on the open market. A national “Volunteer Appreciation Week” is held every April to recognize the input of volunteers’ time and efforts.

Motivation and inspiration for women

Both in giving and volunteering, data show that the primary motivation is related to religion. Churches and other religious institutions receive just over one-third of both donations and volunteer services, more than any other type of organization. Moreover, since many social service charities are “faith-based,” the impact of religious tenets on philanthropic endeavors is likely even greater. Generosity and doing good unto others are important to religious traditions.

Since women are greater participants in religious services, it is not surprising that they are more likely than men to take a leading role in community affairs (serve on boards, volunteer time, etc.), give a large share of their income to charities and even to work in established charities or nonprofits. Many women are executive directors of major charities. Since 2002, Marsha J. Evans has been president of the American Red Cross, which was founded by Clara Barton.

Some charities have made a point of reaching out to women for donations to specific causes. For example, the American Heart Association tries to get women to give by emphasizing that more women die due to heart disease than any other reason. Otherwise, it is difficult to determine whether donations by women are different from donations by men. It would appear that “causes,” whatever they may be, inspire generosity without gender consideration. Contributions on tax returns and joint donations by husband and wife foundations further blur any distinction.

Women have also established charities, often spurred by a particular event in their lives. For example, Mothers Against Drunk Driving (MADD) was founded by a mother whose child was killed by a car driven by an intoxicated driver.

One cleverly named nonprofit, Puppies Behind Bars, was founded by a woman interested in people and animals. The organization works with prison inmates who provide initial training to guide dogs for the blind. Prisoners care for the puppies and teach them the basics of obedience and confidence in preparation for the final stage of rigorous training. The puppies’ presence in the prisons helps both inmates and dogs learn responsibility while positively transforming the atmosphere in both men’s and women’s prisons.

The American tradition of generosity

While there are no international statistical comparisons, ample evidence suggests that Americans are very generous people. The American tradition of individualism, sense of personal responsibility, grass roots involvement, widespread volunteerism, and proliferation of benevolent organizations at the community and national levels indicate that Americans can rally quickly to support a cause. In contrast, in Europe there is more reliance on government programs as part of the legacy of decades of socialist influence. American men and women prefer to get involved and solve problems with minimum government interference. Philanthropy plays a role.

Americans of a certain age, experience and success often ponder what good they can do. Philanthropy is one answer. To track significant giving on a regular basis, the Wall Street Journal earlier this year initiated a new feature called “Giving Back” that appears every Friday. The column highlights major donations made during the week. There usually is a plethora of sizable donations to report, many given by husband and wife foundations.

Some pundits say that perhaps generosity should be measured not by how much one has given, but rather by how much is left over. Tithing, the widow’s mite and giving without counting the cost are all fine examples of caring for one’s neighbor. Yet, there seems to be something more. The whole concept of individual benevolence brings to mind a Portuguese proverb: Quem da aos pobres presta a Deus. Translation: Someone who gives to the poor lends to God.
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Vincenzina Santoro, M.A., is an international economist and former Vice President of J.P.Morgan and Co., Inc.