Episode 163: The Insidious Nature of Inflation on Philanthropy and Economics

Welcome to another edition of "Around with Randall" your weekly podcast on making your nonprofit more effective for your community. And here is your host, the CEO and founder of Hallett Philanthropy, Randall Hallett.

It's a pleasure to have you join me here in 2024 for this edition of "Around with Randall." As discussed in the last podcast or two in 2023, I want to start 2024 out with a realization in a conversation really around one of the most insidious issues, economically, that any society would deal with and we're in the middle of it. And I also would add that it's a complete disconnect from the larger kind of tracking or the the governmental metrics that go on when it comes to this issue, and what we're talking about is inflation. Recently there have been a number of national reports on national shows. It's reported in on the news that inflation is down, that inflation is becoming more under control, that the fed's increases of interest rates have helped reduce it. I'm not going to argue with the numbers but I think that there there's a terrible disconnect as to what's actually happening when we talk about inflation. What's happening in households and the last we, is how that relates to philanthropy.

So let me give you some of the evidence I see that I think that we have a disconnect that inflation isn't as under control as everybody, at least the government and the FED tells us. So recently Giving Tuesday occurred. This was the smallest increase in a number of years, only 6%. And according to the experts who watch Giving Tuesday fairly closely they knew early on in the day that that there were going to be challenges because the speed and the number of donations coming in earlier in the day, which is when they see the greatest rush weren't there. Reuters is doing an immense amount as well as others of tracking of what households are telling us and that 60% of households making less than $50,000 believe that there is an actual recession ongoing right now even though economically the numbers would say it's not that. 61% of households making more than $100,000 believe they're in a recession. That 66% of the households with kids living in the house believe that there's actually a recession, that their money isn't going as far. Bank rate has reported recently that 64% of adults have said they have made true changes to their spending habits.

I found an interesting article about Walmart and and then they asked Amazon as well, they asked one of the leaders of Walmart at a conference in November what are you seeing or maybe it was late October what are you seeing from a buying perspective. And he says, his comment was what we're watching is making us sit up. We're a little concerned because people are choosing to buy less expensive, let's say peanut butter, in significant numbers. It's called price sensitivity. From an economic perspective that when they look at, I'm picking random brands, Jeff versus the Walmart brand and it's a dollar cheaper. I don't know if it's better or worse peanut butter but the price is what's beginning to drive some of those base necessities, and they haven't seen that in a long time. I found it interesting in an article about the Christmas movie Home Alone you'll remember that Kevin goes to the grocery store and he's got a $20 bill and he buys a half a gallon of milk, a half a gallon of orange juice, TV dinner, Frozen mac and cheese, laundry detergent, cling wrap, toilet paper, a pack of army men, and some dryer sheets, and the total comes to $19.83 and he says keep the change. Those same items today would look a little different in terms of price in 2022 those same items compared to 1990 were $44.40 and in 2023 they're $72. CBS did some analysis and found that it takes approximately, nationwide if you're in Colorado, was more if it was Arkansas it was less but it takes $11,000 plus $11,400 more to afford basics here in 2023 than it did last year.

Anecdotally, three things that we I've realized. Number one is is that our school district has a food bank for the families in the school district which is terrific, and every year they do at the holidays a food drive and we're involved in the school in different ways, my wife more than I. And we began to realize very quickly the number of canned foods that have come in from that food drive is dramatically different than it was a year or two ago. Then we always want to make sure we recognize the amazing teachers and support staff who teach our children every day. My wife handles kind of the holiday present Venmo from parents, a significant difference from years past in terms of the number of parents and the dollars that they're giving. So much so that I went back and looked year-over-year from Venmo from a parent a what they gave a year or two ago to what they're giving this year, half or more less.

I've got three clients that I've had conversations with in the last three weeks, four weeks, where they watch their year-end giving numbers, calendar year end just diminish, and they're trying to figure out why. I've always believed, and I think other economists would say it much more eloquently than I, that inflation is one of the great hindrances of society. I'm not saying that's worse than depressions or other economic climates but when inflation runs rampant it does two things. Number one is it harms those at the lower end of the economic spectrum unbelievably more so than those in the middle and the high end. And number two, it erodes instantaneously purchasing power in ways that we don't understand until we get into them. Small example, we're going to pivot all this to philanthropy in a second, is if you're at, if you had, if you spent a, to make it even a dollar for a loaf of bread in 2019 and then we had inflation at 10% that then the loaf of bread becomes a $1.10 the next year and then the next year 2021 another 10% a $1.21 and then another 10% in 2022 all of a sudden that bread's up to $1.33. The global government number saying inflation's coming down, I would not argue. The problem is is the loaf of bread's price didn't go down, it keeps going up. It's just going up at a lower amount so if inflation only went up 5% in 2023 that loaf of bread is now $1.39. Yes, the increase has has gone down, but the loaf of bread is still more expensive. So as an example in a four year span the loaf of bread has gone from a dollar to $1.39. Now add coffee, ham, laundry detergent, and you begin to see that the total cost of inflation over four year span, what the customer is realizing is a 40% increase in that expenditure even though the government's telling us that inflation is going down. It's not going down. The increase is going down.

How does this all relate to philanthropy directly? I think we're on the precipice of some unbelievable changes when it comes to what this next year is going to look like. When we look back in June or July and then I think look back in a year, because they're always about six months when the Giving Collaborative and the Giving USA releases its numbers of a hollowing out of our annual giving, lower end donations. I think families are just saying if I have a choice be giving $50 to X or buying food. This does not even take into account the numbers that are we're accumulating that defaults on on a home equity line and car payments are up, that we have issues and challenges with defaults when it comes to not making home equity line payments, that credit card balances are as high as they've ever been. I'm not here to be a naysayer. I think philanthropy will still be important, but we're going to have to change the way we do business because if you keep trying to do the same things over and over and people are, don't have the resources to give, particularly at the mid and low levels, your annual giving programs, you're going to end up with a problem.

So what are we supposed to do about it? The first is, I think we have to be honest as to what's actually occurring, that the inflationary issues of the pandemic and post-pandemic are greatly harmful to many families, more so than I think we discuss and realize. And as the world is driven, usually particularly in the news by maybe those who aren't in those price or salary ranges isn't being discussed correctly, we have to have an understanding. We got to change what we do and an empathy to realize that there are a lot more people out there in need than we realize. So, practically, what does this all mean? First is, let's take the annual giving process. I think that there are monumental opportunities to change what you do. Back in episode 135, I believe, of this podcast, I dealt with kind of the concept or the thought process of the GoFundMe movement, of the annual giving process. That was in the mid-summer I think it was, or even further back in 2023. And now I'm even believing it more with the cost of printing gone up, inflation with the cost of postage continuing to go up, we're going have to have a massive change in how we handle annual giving because the cost-benefit ratio of mailing out just to everybody can't be done.

So how do you involve artificial intelligence to limit the people you're mailing to? The people that are most likely to want to engage? How do you take social media, email, online platforms, whether it's Facebook, Twitter, now X, Instagram, TikTok, other things to enrich your messaging, to get people to engage in your cause, giving emotional testimony as to why your nonprofit's so valuable, telling stories of why the dollars can make a big difference. This overlay is going to reduce our cost because we obviously, not postage, not printing, but on the secondary level is it's a wider audience of people you don't necessarily know about. Our annual giving programs are going to have to change.

The second thing about annual giving is that we're going to, and we'll talk about this in the major giving, and estate giving, principal giving as well here in a moment, stewardship's beginning to become more and more and more and more and more and more important. The cost to get new donors is so, becoming so great that it's almost cost prohibitive but simple. Cost effective stewardship can maintain a donor base so they're more open to making that gift the next time. How you tell the story about how their gifts are used, and the value, and how important they are is more important now more than ever. And so not only is it about asking, it's about reporting and making people understand, believe that their gift's making a difference and doing so in a cost-effective way. The other things you can think about in the annual giving process, and we'll jump kind of in major gift, is you need to ensure that you are capturing and if you're not highlighting every year, last year, but unfortunately not this meaning they gave last year but not this year and doing everything cost effectively possible to convey why they're important. And to get them to give again, you're letting them go the same with they gave some year now if they gave 25 years ago they haven't given you sense, there's a cut off. But you're going to have to concentrate on on those that have already given and create those reoccurring gifts constant so they know how important that gift is. You might actually have to ask for increases. Last year you gave $25. Would you give $30 because our cost have gone up and that $5 difference will make this possible. You might have to ask for things like an extra installment gift, I.E you gave $25 earlier this year could you consider a second $10 or $25 because of the challenges we're having to meet the needs that our nonprofit mission serves.

Moving more to the digital platform is going to be important. Creating strategies that get out to people and that's why you just can't depend on email because you have a whole community that might support you. How you leverage, as we discussed, those Facebook, Twitter, X, Instagram, TikTok, other things that people are more likely who are not directly connected to you you can sell that message of why you're important from a major gift perspective.

If we shift just a little bit you might have to increase pledge payment time frames. If somebody has a $100,000 gift and it's becoming a challenge you might have to be in a position where you say gosh, can we extend it a year or two. But this means a better, more robust, more aligned conversation with finance to ensure what you're offering is viable and possible. Extending pledge payments and periods is an option. Number two is if someone's having trouble with cash immediately, which we've talked about for years and years, but it's becoming more and more important. Engaging in a blended gift conversation. Can they meet half their pledge in their estate? Could they increase their gift with an estate gift because that's when they don't need the money, but their passion and their legacy can still continue to support the organizations they believe in. We need to be having blended gift conversations with every major donor prospect we have. Planned gifts should be a part of everything. Now our metrics sometimes don't help us, but the longevity of the organization and its financial security and success demand it. Again, you're going to have to work with finance because if you're trying to build something and it's all in estate gifts that makes it really hard to build if they're depending on the cash from philanthropy.

Number three, shifting to more conversations about appreciated stock we are seeing. The market, I'm not quite sure I fully understand, but the market is significantly up which means people are doing a couple things that they have appreciated stock or assets that they could give, which means they don't have to pay the capital gains. It can fulfill either a pledge and or make a new gift. They're also rebalancing portfolios, which means they're trying to figure out if this goes down how do I make sure I don't lose more money, which may identify bigger appreciated stocks that need to be sold and or given so there's not capital gains. I think there's also an opportunity to talk about L held assets so if you think about Coca Cola when maybe Pur, in let's say 2010 or 9 it was selling for $21 a share and if you put in $100,000 you got 4,600 shares. Coca Cola is now selling for almost $60 a share which means that is worth $260,000, so it's a dramatic increase. Can you sit and talk with people about appreciated stock, not just in the short term but are there things they've held on long to? Apple is up 4,000% since 2008 and Walmart is up 29%. If they have an indexed fund towards the Dow Jones that's up 345%. Looking at stock and investments more longitudinal can show appreciation whereas if you just look at it over year-over-year, there may be some but not as much different conversation with donors.

Another aspect, and this could be also true in in the annual giving process, you need to personalize conversations. Going back to, and I did a podcast on this, you can look it up, "The Seven Faces of Philanthropy" by Prince and File, knowing what kind of donor they are, what they want to hear, what they need, and a more individualization of the communication you provide, probably digitally, can be more effective. That's a long-term change and communication plan. It's an education of your gift officers as they're building these deeper relationships, figuring out exactly what are the messages that are going to resonate, not with all your donors but begin to segment them into the seven faces, the Dynasts, the Altruists, the Communitarian and so on, and then being able to figure out those seven faces of philanthropy Prince and File what exactly they want to hear.

I've said for many years that when I began my career I truly believed, and was kind of taught to me that the Pareto Principle that 80% of our dollars came from 20% of our people that was 1997. The gray hair gives me away. It's not 1997. For the last five to seven years I've been preaching that we're in a 95-5 world. The Pareto's dead and he actually is because he was an Italian economist and business owner who passed away in the early part of the 1900s, but the concept'S dead in philanthropy. My fear is that we're moving to a 97-3 world that 97% of our gifts come from 3% of our donors. The real question is going to become pipeline. How do we identify the next 3% person when they're 28 years old today and not used to making gifts that we bring them into the fold so they can make gifts that are reasonable to build their connection with us? Are we undercutting because of inflation? All the future just to concentrate on the now inflation is a killer for for societies. This is why the FED is pushing so hard to bring it down. I just don't think that those in power, those with resources, those that are supposed to be representing us have a full understanding of what's happening on the street. And based on the evidence I mentioned, whether it's some of the initial data or just the anecdotal, we are in a point where we got to pivot.

Nathan Chappelle and Brian Crimens wrote the Generosity Crisis, 47% of our households now make a gift or so to anything philanthropic, any charity. My fear is it's going to go down and unless we come up with new ways of building out communication, relationships, and understanding those who do give to us keeping them giving them a clear value of why they're so critical to us, what we're going to end up with is a hollowing out of the thing we need the most, the relationships, and the people, and their trust. And so now is the time to get ahead of it. Inflation has pushed us to this point. Now it's our our job to pivot. I'm not meaning to be negative. I do believe in the future of this, but old thought will not get us to where we need to go tomorrow.

Don't forget to check out the blogs, other things discussed there. 90-second reads at hallettphilanthropy.com. And if you're interested in communicating with me it's podcast at hallettphilanthropy.com. You're doing something important. It's challenging. There's a lot of moving pieces in philanthropy. I keep talking about this over the last 18 months, I truly believe it more now than I used to, but what you're doing is critically important. Don't forget, some people make things happen, some people watch things happen, then there are those who wondered what happened. At the end of the day, philanthropy is about people making things happen, you and philanthropist for the people and the things in our community that are wondering what happened, and that has value. It's incredibly important. Be somebody who makes things happen and begin a pivot, hard conversation, about how we change what we do to get to where we want to go. And that, ladies and gentlemen, my friends, is a worthwhile conversation. I'll look forward to seeing you right back here next time on the next edition of "Around with Randall" and don't forget make it a great day.