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Millionaires Gave More in 2006, but Is Philanthropic Interest Waning?

(June 4, 2007) Two recently released studies provide contrasting data about whether millionaires will give more in 2007 than in 2006 and if their interest in charitable giving is on the decline.

The latest American Affluence Tracking Study, conducted by the American Affluence Research Center in Aventura, Fla., and reported by the Philanthropy Journal, found that of the wealthiest 10 percent of U.S. households (one in four) will donate more in 2007 than in 2006. An additional two-thirds of millionaire households will give the same amount. These households have an average income of $256,000, average financial assets of $1.3 million and an average net worth of $3.1 million.

Charitable contributions rank second only to domestic vacations in terms of spending priorities for 2007, according to the study. While 11 areas of spending are predicted to decrease, giving is expected to increase for the fifth consecutive year.

Not So Fast

However, another study has concluded that while millionaire households increased their giving by more than 20 percent in 2006, contributions are expected to decrease in 2007.

Wealth in America 2007, conducted by Northern Trust Personal Financial Services, found that just 27 percent of high net-worth households will increase their charitable donations in 2007, down 44 percent from the previous year. Fewer millionaire households make charitable giving part of their annual budget (59 percent in 2006 vs. 70 percent in 2005) or long-term financial plan (37 percent in 2006 vs. 53 percent in 2005).

In addition, these households increasingly don’t view giving as an important tax reduction strategy (28 percent in 2006 vs. 44 percent in 2005) and place less emphasis on giving during their lifetime versus their estate (43 percent in 2006 agreed that giving during their lifetime was more important than giving through their estate, compared to 60 percent in 2005).

“Given the current estate tax exemption schedule through 2010, the uncertainty about the estate tax thereafter and expectations around healthcare costs for elder family members, some families—especially those with less than $3 million—are reconsidering the need to employ charitable donations in their long-term term financial plans and tax strategies,” said Marguerite Griffin, national director of philanthropy at Northern Trust Personal Financial Services.

Many millionaires also simply may not be aware of the various giving opportunities that are available. Just 41 percent of respondents considered themselves knowledgeable about giving vehicles, such as charitable remainder trusts. “The onus has to be on the fundraiser to encourage awareness of these issues,” said Paulette Maehara, CFRE, CAE, president and CEO of AFP. “Most donors simply don’t know that there are financial arrangements that can help both themselves and the charity they want to support. The profession has to do a better job of educating and even working with donor advisors, which is becoming more commonplace.”

Differences in Income, Generation

However, some millionaires are more knowledgeable than others. Deca-millionaires (with at least $10 million in liquid, investable assets) were three to four times more likely to use all types of giving vehicles, including private foundations, charitable gift annuities, donor-advised funds and charitable lead trust. Deca-millionaires also improved their giving most in 2006, with donations increasing by an average of more than 50 percent.

Gen X millionaires (age 27 to 41) were more likely than other age groups to plan on increasing their donations in 2007 (35 percent to the overall average of 27 percent). They tended to give more than either baby boomers (ages 42–60) or mature millionaires (ages 61 and higher).

The study also looked at how millionaire households give to charity, and by far the most popular way is through charitable bequests in a will. In 2006, almost one-quarter of high net-worth households indicated that their wills contain a charitable bequest, up from 18 percent in 2005. Twelve percent of households said they planned to establish a bequest in the future.

About the Studies

The American Affluence Tracking Study is a bi-annual study of the spending habits and patterns of the richest 10 percent of American households. The Spring 2007 Survey featured responses from 398 households in March 2007.

The highlights of the study are available free of charge on the American Affluence Research Center website. The 27-page/24-table Spring 2007 Survey is available at a price of $395. With a full set of 101 pages of cross-tabulated data, the price is $595.

The mission of the American Affluence Research Center is to provide reliable marketing and economic resources and information about the values, lifestyles, attitudes and purchasing behavior of America’s most affluent consumers.

Wealth in America 2007 features 1,002 responses from households with $1 million or more in investable assets. The survey was conducted in November and December 2006 and has a margin of error of plus or minus three percentage points at a 95 percent level of confidence.

A press release about the study is available on the Northern Trust Personal Financial Services’ website. The firm, based in Chicago, provides integrated financial services to high net worth individuals.

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