Why Did Charitable Donations Plummet in 2009?

Last year was a rough one for charities. Giving was down 11% for the 400 biggest charities, according to the Chronicle of Philanthropy. The drop was nearly four times as great as the previous high of 2.8%. What happened?

At first, it might not be particularly mysterious why Americans were stingier: the U.S. has been in a pretty rough economic downturn since the 2008. But really, only the first half of 2009 was very bad. Overall the year was relatively better than 2008. The S&P 500 was up 24% in 2009, versus down 38% in 2008. The recession technically ended in June 2009. Many corporations found their way back to profitability, and Wall Street bonuses largely rebounded. So why did Americans still give so much less?

First, the amount of charitable giving someone can afford isn't only about present situation: future prospects also matter. In 2009, it became crystal clear that the American money machine had slowed considerably. Even though the recession might have technically been over, aggressive growth would be absent from the nation for some time. That means smaller profits for corporations and more modest income increases for individuals. Consequently, both firms and people felt they should save more and spend less. That includes charity.

Of course, 2008 also included huge losses in wealth for many Americans. As a result, those gains in 2009 didn't contribute to much new wealth, but mostly replaced what was lost. For many well-off Americans, this meant that their net decline in wealth wasn't as great, but were still behind where they were at the beginning of 2008. Still poorer than they were a few years ago, their charitable donations declined.

Finally, it should be noted that it isn't only the rich who donate to charities: many less affluent Americans contribute what they can to causes they deem worthy as well. But the recession has been particularly hard on those classes. Consequently, the same fear that drove these Americans to cut their spending and pay down their debts has reduced their charitable giving.

Unfortunately, charities aren't particularly optimistic about 2010. Although they expect giving to rise, it might only tick up around 1.4%, according to the Chronicle of Philanthropy. Until the economy experiences a more robust recovery, it's hard to see how Americans will become more comfortable giving a lot more to charity.