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What’s the True Measure of Wealth?

Income Vs Equity

You already know that the Tax Cuts and Jobs Act of 2017 has many nonprofits worried about declining charitable gifts because the act nearly doubles the standard deduction for individuals.

The Worried Fundraiser

Fundraising professionals focus on income as a measure of giving ability.  The worried fundraiser thinks this way. “The prospective donor won’t give, because she won’t save money by being charitable.  I won’t raise enough money to make my annual goals. My charity won’t accomplish its mission, and I’ll lose my job. What am I going to do?”

Here’s what you are going to do.  You are going to focus on net worth instead of income.  Net worth is the value of an individual’s entire estate.  It’s every thing that he or she owns, not just income.  Like real estate, investment accounts, business assets, collections, insurance contracts, collections, and whatever else has value that a prospective donor may own or have a right to.

Net Worth is an Untapped Resource

To make the most of net worth, you need a planned giving program.  You need to ask donors about real estate, investment accounts, collections, and business interests.  Let prospective donors know that they can give these assets away during their lifetime or after they pass away.  You can even show them that they can make major gifts and possibly increase their annual cash flow with a charitable remainder trust or gift annuity.

If I had my way, all fundraising programs would focus on accumulated wealth instead of income.

If I had my way, all fundraising programs would focus on accumulated wealth instead of income.  I know that it’s easier to find people who have high income.  Fundraisers are always trying to meet with business leaders, technology executives, doctors, engineers, and even lawyers.  Why?  Because the conventional wisdom purports that these folks have more money to give because they have higher incomes.  It’s true that there is a correlation between high income and high net worth.  However, if you only look at income, you are going to miss out on a lot of wealthy people.

The individual income of the top 1% of Americans is just over $400,000.  The net worth of the top 1% of Americans is just over $10,300,000.  Here’s the kicker;  that $10,300,000 is unspent!  Household expenses and debts are subtracted before you get to net worth. *

So, how are you going to find these people?

  1. Start by getting to know your donors aged 50 and up.  These individuals have had more time to accumulate wealth. It’s not what you earn that makes you wealthy, it’s what you save that makes you wealthy.
  2. When you are in discussions about major gifts ask questions about assets.  I know that your supervisor wants you ask about cash, but show them the data.  Wealth is in assets.
  3. Read “The Millionaire Next Door” and “The Seven Faces of Philanthropy” to prime your powers of observation and intuition.

Think Transfer of Wealth

Finally, take the long view on charitable giving.  It takes time to find these individuals. Spend your time focusing on net worth rather than income. Philanthropy is built upon the transfer of wealth, not income.

[Note from Viken Mikaelian: Most people think “how much more money/raise can I get next year.” Think instead “How much can I increase my personal value.” This may sound the same to most (and it will) but it is a different paradigm.]

* The United States Census Bureau 2017 Current Population Survey and Annual Social and Economic Supplement asked participants to report their person income for 2016.

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