I recently spoke with an associate from a charitable organization supported by Viewpoint Foundation, who introduced me to the concept of multi-year donations that account for inflation. The current rising costs of living, rent, and utilities impact non-profit organizations just as much as the individuals they strive to assist. Shelter costs in Canada for example have been “rising at their fastest year-over-year pace since 1983” (Hillel, 2022). And while multi-year gifts serve as powerful planning tools, their actual value can diminish over time due to inflation. As operational costs increase, stagnant donation values, while still valuable, do not stretch as far. Now that I am aware of the concept, it seems so obvious, yet not many funders are incorporating an inflation buffer into their donations. But by doing so, the real value of multi-year contributions can be preserved, ensuring philanthropic goals are achieved, even years down the line.
Understanding Inflation & Its Impact on the Charitable Sector
As an obligatory overview, inflation is the rate at which the general level of prices for goods and services rises, leading to a decrease in the purchasing power of money, eroding the value of cash and investments over time. For instance, a $10,000 donation made today will not have the same purchasing power in ten years if inflation averages 2-3% annually. Without adjusting for inflation, the real value of any donations made diminishes, potentially reducing the impact of these contributions.
Inflation places additional financial pressure on low-income individuals and families, increasing the demand for nonprofit services. Unlike most sectors, many charities provide their services for free and cannot pass rising costs to consumers. These increasing costs, including wages, rent, and supplies, must therefore be absorbed by the organization.
Lower wage growth relative to inflation can also impact the ability of charities to raise funds, as people's willingness to donate often correlates with their disposable income. (Hillel, 2022) This was made evident when CanadaHelps, an online charitable fundraising platform, released their stats in 2021, stating that the funds raised that year were two per cent less than the previous year, making it the first decline in the organization’s 22-year history. (Bakx, 2022)
Another example of how inflation impacts various charitable organizations is seen in Brown Bagging for Calgary’s Kids' recent statistics. Despite receiving food donations, they spend more than a million dollars annually to provide nutritious lunches to children. And their dollars aren’t going nearly as far, given that, even at wholesale prices, costs have risen for food stuffs such as celery (114%), carrots (29%), and turkey (12%). Additionally, demand for their services has never been higher. For example, during the 2021 school year, the number of children requiring food from the charity rose by almost 20% to 5,400 kids per day. (Bakx, 2022)
Recent Ipsos polling for CanadaHelps echoes these concerns. Nearly one in four (24%) respondents in late October said they expect to need help from a charity for food, health, or housing services in the next six months, up two percentage points from the previous year. (Lord, 2023) Also, a December 2023 public opinion poll commissioned by Imagine Canada and supported by BMO found that 17% of respondents had personally needed to engage with a charity or nonprofit to cope with inflation and the higher cost of living, nearly doubling from 9% a year earlier. (Barr & Jensen, 2024)
Most recently, a report that was released this week from MNP reveals that 47% of Alberta respondents were $200 or less away from failing to meet their financial needs, marking a 13-percentage point increase over the previous quarter. The report also found that nearly one-third (32%) of Alberta respondents—a number that is 10 percentage points higher than the last quarter—are in a position where they cannot cover their bills and debt payments. (Strasser, 2024)
Three Key Reasons to Adjust for Inflation (Hillel, 2022)
- 1Maintaining the Value of Donations: To ensure that the charitable organization can continue to achieve its mission effectively, it is crucial to maintain the real value of donations over time. By adjusting contributions for inflation, it helps to safeguard the organization’s financial stability and its ability to deliver services and programs at the same level.
- 2Sustaining Long-Term Projects: Many charitable endeavours, such as educational programs, research initiatives, and infrastructure projects, require sustained funding over multiple years. Inflation-adjusted donations help these long-term projects remain viable and impactful, preventing budget shortfalls that could derail important work.
- 3Enhancing Predictability and Planning: Charities can plan better and allocate resources more efficiently when they know that their funding will keep pace with inflation. This predictability allows for more strategic decision-making and long-term planning, leading to more effective and impactful programs.
Strategies for Inflation-Proof Giving (Barr & Jensen, 2024)
- 1Incremental Donation Increases: One straightforward approach is to increase annual donations by a fixed percentage to account for anticipated inflation. For example, if it is expected for inflation to be around 2% per year, donations could be increased by 2% annually to maintain their value.
- 2Inflation-Linked Donations: Another method is to structure donations to be explicitly linked to an inflation index, such as the Consumer Price Index (CPI). This ensures that contributions are automatically adjusted for inflation, preserving their real value.
- 3Endowment Contributions: Contributing to an endowment fund is another way to provide a steady stream of income to a charity that is adjusted for inflation, as they are typically managed to generate returns that exceed inflation, providing long-term financial support.
Considering inflation when planning multi-year donations not only ensures the longevity and effectiveness of contributions, but it also reflects a thoughtful and strategic approach to philanthropy. By preserving the real value of donations, charities can achieve their missions more sustainably, ultimately contributing to more significant and lasting positive change.
Inflation is an inevitable economic reality that can have a substantial impact on the value of multi-year charitable donations. By understanding its effects and implementing strategies to account for inflation, donors can futureproof their philanthropy, ensuring their generosity continues to make a meaningful difference for years to come.
Bibliography
Bakx, K. (2022, July 10). Charities and non-profits face tough choices amid recession and inflation. CBC News. https://www.cbc.ca/news/business/bakx-charity-nfp-recession-inflation-1.6515243
Barr, C., & Jensen, E. (2024, January 30). What trends will impact charities and nonprofits in the first quarter of 2024? Imagine Canada. https://imaginecanada.ca/en/360/what-trends-will-impact-charities-and-nonprofits-in-the-first-quarter-of-2024
Hillel, I. (2022, April 26). Forced to do more with less: The impact of inflation on charities and nonprofits. Imagine Canada. https://imaginecanada.ca/en/360/forced-to-do-more-with-less-impact-inflation-charities-and-nonprofits
Lord, C. (2023, November 28). Canadians stretched more than ever heading into ‘critical’ Giving Tuesday. Global News. https://globalnews.ca/news/10117704/giving-tuesday-inflation-donations-dropping/
Strasser, S. (2024, July 22). 'Tipping point': Nearly half of Albertans $200 or less away from insolvency, MNP survey says. Calgary Herald. https://calgaryherald.com/news/almost-half-albertans-near-insolvency-mnp