Episode 211: Looking into the Future - Philanthropy Predictions for 2025
Welcome to another edition of Around with Randall, your weekly podcast for making your nonprofit more effective for your community.
And here is your host, the CEO and founder of Halette Philanthropy, Randall Hallett.
It's a wonderful day here at Around with Randall, and I thank you for taking a moment of your day to join me as we try to look into the future. A little bit, I'm thinking about 2025 as I do my annual year-to-come predictions. I've been somewhat surprised, to be honest, but also kind of proud that over the last couple of years I've been really in line with some thoughts as to what might be happening for the next year. And so I'm hoping to repeat that again, giving you something to think about as you want to prepare, do well, have a plan way out of strategy around what 2025 might look like for you and your organization. Maybe today a few nuggets that might be helpful.
When I look at 2025, I'm going to break this up into three major areas with each area having several predictions. The first is economy, which is going to drive a lot of the thought process on how we look at our donor database. Number two is actual giving and what I think might happen in particular with some maybe elevated emphasis. And third is just general industry, things that I think the industry is going to be moving toward. So there'll be multiple predictions in each one of these kind of areas that we have to talk about here today.
The first is the economy. I think one of the things that we have to start with is probably what will come out in early 2025. And I apologize, but this is spending three years studying tax law and as well as really, really enjoying it is that the tax changes that occurred in 2017 are looking to be sunset if nothing happens by the end of this next year 2025 with the changes in Congress as well as the presidency coming out of the election in November. We're going to see a real conversation about this, the corporate tax level, the individual tax level as well as the exemptions in plan giving.
This is really, really important because it's going to drive a lot of discussions about how much disposable income people have. Now on the political side, which I am not going to get into, there is a deficit conversation going on as well. We're going to focus on what this means for philanthropy. If what I think is going to pass, which is a continuation or at least directionally, a continuation of the kind of the aspects of the 2017 changes, the corporate tax rate will stay a little bit lower. The individual tax rate will probably stay lower and then we're talking about having a larger exemption for a state giving. All those things are going to make an enormous difference. It's going to drive our economy for a while. That's also going to affect people's disposable income as we've mentioned.
I think that the first outcome from that is that the stock market may go up. In a minute, I'm going to get to maybe a different way of looking at our larger perspective of the economy and our potential donors because I think there's something happening that's really important.
The second thing is is that I believe that these tax policies are going to re-emphasize a couple of really important things that are going to at least be discussed I'm predicting from a nonprofit perspective. They're both related around plan giving. Number one is is that with the exemption being or being kept possibly 13, 13,500, maybe growing with inflation as it looks forward, plan giving from a tax perspective for most people isn't a real issue. If you get an exemption of an individual of 12 to 13 to 14 million dollars, most people don't have those kind of assets. Put a couple together that's 25 or more. Now we're talking about a very small percentage of people.
But the biggest conversation is going to be around which is not directly related to the tax situation but about donor advice funds. There was a fascinating article that I wrote about in my recent blog which you can see by due to a week. This is the kind of things I write about when I read stuff that don't reach quite the depth of a podcast but I think a worthy of something. But this article in the Chronicle of excuse me, Chronicle philanthropy talked about how the size of donor advised funds has become almost a power political weapon because if you make a gift or if a donor makes a gift to donor advice funds, it doesn't have to be distributed by whether it's fidelity or swap or a community foundation.
A lot of organizations are creating kind of internal donor advice funds that you don't have to allocate those resources but they get the tax deduction. The number of dollars sitting on the sidelines in these donor advised funds is in the hundreds of billions now. The article gets into the discussion about power and wealth that that's giving immense power to community foundations as well as other, you know, nonprofits that are holding these funds as well as aren't really transferring the wealth to society.
And I think this is going to become more of a conversation in part because there's going to be a pushback that if we have this much exemption in the tax code and people are giving money to donor advice funds, they shouldn't probably get both sides of the equation meaning they don't get the benefit for giving it and not having to pay taxes on it but it not going into doing the community what it's supposed to from a philanthropic perspective.
I'm not quite sure I know what the answer is. I do believe that in time there will be a discussion around capping the size of these funds and or a time limit as to how long they can sit on the sidelines. And I would say the same for endowment funds, particularly because places like Harvard, Yale, other huge institutions that have these enormous endowments are sitting on them. Now the question is is that good? There's a lot of good give and take care. But I think the overall emphasis is we're going to start seeing conversations about donor advice funds being held off in the sides too long.
And number two, that with the economic pressures that are coming, we'll talk about this in a minute, that plan giving is going to become more and more of a conversation, particularly as we've seen some estimates over the next 25 years, somewhere between 85 and 90 trillion dollars is going to transfer in generational estates transitioning when people pass. We already know that about 12 to 13% of that is in nonprofit charity gifts coming out of those estates. I think there's going to be more. And so this is all interesting in terms of how the tax code, the big thing will affect us.
So that's number one. Number two, and they won't all be this long. I apologize, but I geek out a little bit on the tax code because I think it's important in terms of our economic viability as a country and certainly how it affects philanthropy.
Number two is the larger scale of the economy. And that's what I'm thinking or calling a K economic recovery. You may or may not have heard of this term. I think it's going to be discussed a lot more and you should be aware of it. If you think about the letter K, if you start on the left, it has the branches that go up and down to make the K.
And in some ways, that's kind of what I think our economic model looks like across the country. There are a number of people who are doing incredibly well right now. The stock market is up 10, 15, 20% in the last six months, which I did not predict for 2024. And we got a number of people doing well.
But if you take the K, the other direction going downward, there are a lot of people who are stressed financially. You look at what's happening from the reporting around defaults in homes, car loans. People are taking out longer loans. I've now seen the first time advertised at 96 month car loan, which I'm like, the only reason you do that is because you're less in your payments. So you can afford it.
So from a long term asset perspective, you can be under water for a long time with a car. If you take out the loan that long with how it might depreciate depending on the car and how much put down things of that nature. We also are seeing the highest amount of credit card debt. We've seen the most amount of what they call break-ins breakthroughs when it comes to our retirement plans.
There is a large segment of our population that is not doing well. But we see the indicators more often than not from the stock market, which is going up. So everybody's doing well. The perception might be. And it's really not that case.
So the K economy, the question becomes how thick the two lines are for my metaphor. I think it's quite thin going up, but it's dramatic. And I think it's quite thick going down, meaning there's a lot more people. What does this mean?
I think we will see a continued decrease when it comes to annual giving. The people who normally do the $2,500, $250 donations will continue to decrease as we've seen over the last several years. Our gift pyramids are going to change, whether it's an annual gift pyramid change in terms of how you plan your year, who your donors are, and how they slot in.
This is, by the way, something I discuss in podcasts, going all the way back to the 20s, around how you do metrics. I have charts that I share right there. How do you do this individually every year? Two campaigns if we shift to larger. All this to say, I think we're moving closer and closer to a 97/3 model rather than a 95/5 model. What I mean by that is that 97% of our dollars may come from only 3% of our people.
I believe, and I work with a number of clients and audits, development reviews, and kind of the process to figure out what they should look like and what they should do. I'm using a 95/5 model now to figure out how to help nonprofits get to where they need to go. But I think we're moving to a 97/3 because fewer people at the bottom are going to be able to do what they've done in the past.
Outcomes of This
If we have fewer people giving, and we've talked about this a number of times on this podcast, you know, in 2002, two-thirds of households were making a gift. We're probably below 47% now. So we've lost tens of millions of homes. Fewer people making a gift means basic supply and demand economics: the competition for those that are giving is going to become more intense to retain and attract those donors.
I think that this is going to lead to even more discussions about individualizing stewardship. Technology can help. How do you create an individual message? I received a message—you're aware I talk about kind of my life. Generically, we support the law school I went to. I think it was one of the seminal moments of my life professionally. Those three years drove me in many ways to where I am today.
I received, on National Philanthropy Day, an individualized video from the law school to me. Actually, to my wife as well, but I don't think she watched it. Thank you. Individual stewardship, a simple video, a minute long. I thought, "Wow, technology can help merge names and make it individualized." I think we're going to start seeing things like virtual reality options of stewardship because we can't keep losing the people that we're losing. So this increased stewardship is going to become important.
I also believe, based on this K economy with fewer people giving, there's going to be more structural concern around the finances of our nonprofits. Expenses are going to be hammered on in 2025 because that's what the nonprofit believes it can control. They tend to target fundraising activities first or among the first to cut, saying, "Well, you’ve got to decrease." But if I decrease my staff, I decrease revenue. There's a direct correlation between the two. We're going to have to fight that battle in these conversations.
Another factor, and this deals more with the workforce, is what's going to happen in Washington with a real push to put people back into work in the government and offices. I'm not judging that politically. I'm just saying that's probably what's going to happen. There's also going to be a similar push in the private sector.
Here's the thing: the more you're needed, the more you deliver, the more you function as a high-level employee, the more flexibility you're going to have. But I think this work-at-home, work-life balance—which I believe is important—will face a larger push across the country to put people back in office. We're already seeing that in some very large companies, and I think it’s going to become more widespread by 2025.
So that’s kind of the economy in the larger perspective, and that’s the biggest part of my predictions.
The Second Major Area of Predictions: Giving
What are we going to see? This is a terrible prediction, I apologize. I have no idea. Here’s why: fewer and fewer people are making up a larger and larger percentage of the top-end gifts. We are now beginning to see, on a regular basis, eight- and nine-figure gifts being given to nonprofits—certainly in the United States, but also around the world.
When that happens, one or two people—or three people—either pass away or choose to give all of their money in that moment. Or however you want to look at it. Because so few people are making such a big difference, when you look at statistical analysis, it means that fewer people can move the needle when it comes to philanthropy.
I’m not predicting anything, but at some point, the legend that is Warren Buffett is going to pass. I hope it’s not for another 10 years. But we know he’s already articulated that his hundreds of millions of dollars will, in that moment, be transferred out of his control and into nonprofits—mostly controlled now by the choices of his children. That is such an enormous amount of money that, when that happens, it’s going to move the percentages.
A number of large donors might decide not to give anything this year or next year because they’re going to wait for 2026. I’m just saying that when you have the concentration of philanthropy happening in such a small group, a few people making decisions—or a few people passing—can make an enormous difference. So, I don’t know how to predict that.
I do think there will be increased knowledge and awareness, and probably more dollars as well. Based on what I’m seeing in the economy, there’s an emphasis on food and how it includes essentials. I think we’re going to talk more about that: the insecurity of basic needs. Maslow’s baselines of the hierarchy of needs are going to become more and more important.
I’d also say that, as I predicted last year, we’re beginning to see some numbers coming out—even after I recorded the podcast—indicating that climate will be another year of growth when it comes to philanthropy. There will be a lot of emphasis in philanthropy around sectors like basics—food insecurity, housing insecurity, clothing—and also climate, which I think will be a very strong focus for the nonprofit sector.
The Third and Last Area: Industry
These are just some miscellaneous predictions. I think you will see a greater number of mergers and closures. In healthcare, that could mean closures of departments, particularly things like maternity or even surgical centers. They might pivot, particularly in rural communities, to just doing EDs (emergency departments) and stabilization, then sending patients into a hub-and-spoke model where they can maximize cost efficiency.
I think you’re going to see closures of rural hospitals. I would add that colleges—particularly small colleges—are in that same vein. You’ll probably see more mergers. Already for 2025, we’re not even there yet, but I know of six different mergers or closures that have been announced.
For example, St. Ambrose in the Quad Cities is merging with another university for efficiency purposes. I think you’re going to see more of that. You’ll see alliances and mergers continue. Maybe it’s YMCAs, Boys & Girls Clubs, or other organizations with many operating centers saying, “We can’t functionally or inexpensively continue to do this.”
This huge push will have an effect on communities, particularly smaller ones. In larger communities, you can merge things and still drive there. But if you close a birthing center—which we’ve seen across the country—and suddenly you’re driving 120 miles to give birth, that’s tough. I think controlling costs will create real challenges in these areas.
The second major industry change will be a greater acceptance—maybe even because of circumstances—of artificial intelligence. Number one, we’re going to see more and more places say, “We have to accept this,” even if there’s resistance, particularly among gift officers who have had a certain way of doing things.
I equate this to the movie Moneyball with Brad Pitt about the Oakland A’s using Bill James’ statistical analysis to figure out the best players to make up the best teams. They now have different stats to figure that out. I think we’re headed in that direction.
The reason I use that as an example in the movie is because those who were the scouts—the people looking for the next generation of baseball players—kept fighting this, saying, "Well, we know best." That's the equivalent of our major gift officers: "Well, we know best. We know our donors."
What the data is telling us is that we don't. We're too transactional. We're not building relationships with the right people. We're not elevating the conversations the way we should.
There'll be a continuation of organizational acceptance—and maybe some additional resistance by gift officers—to really hone in on what artificial intelligence can do:
• Who should we be targeting for conversations?
• When are they going to give?
• What are they going to give to?
• How much are they going to give?
These questions will actually become more focused in the next year as we move forward. We have to learn to trust this because it's going to be part of our future.
Those are the predictions:
1. The economy and the big picture about taxes and the K economy.
2. Giving predictions—whether giving is going to go up or down depending on who chooses to give or whether they're required to give, maybe in estate situations.
o Increased emphasis on basic needs: food, shelter, and clothing, as well as climate.
3. Industry predictions—closures and mergers becoming more prominent as discussions center on how to keep costs normalized.
There are things that are going to close.
The last is artificial intelligence and its growth. Three big areas, two predictions in each one, with sub-predictions. I'm going to keep this sheet of paper. We'll review it in a year and see how I did.
The last couple of years, I've been running an 80% or better on my predictions. I get kind of specific. I'm hoping this helps you think about your year in a meaningful way so that you can deliver on the work that occurs in nonprofit work and philanthropy.
Nonprofits operate between government, which isn't efficient enough, and for-profit corporate America, which doesn't see this as a profit. We serve in that middle gap to better our communities.
I'm hoping today gave you a sense of some things to think about moving forward.
Don't forget to check out the blogs at Hali Philanthropy—just two a week: www.haliphilanthropy.com. Literally, I'm talking about all kinds of things that don't quite reach the level of a 20-minute podcast but could still be important.
For instance, I recently discussed an article offering a really interesting perspective on donor-advised funds and some of the political pressures that may come.
If you want to reach out to me, it's podcast@haliphilanthropy.com.
Thank you for what you do.
Thank you for making 2024 better for your community and your nonprofit, whether you're a board member, CEO, gift officer, or part of the infrastructure team. Whatever you do, you're helping people.
Don't forget my favorite all-time saying:
"Some people make things happen, some people watch things happen, and then there are those who wonder what happened."
We are people who make things happen. Find others in your community who want to make things happen—for the people, organizations, and things that are wondering what happened.
That's how we make our world a better place.
Philanthropy, purely defined, is the love of humankind. It's not about the money; it's about helping others and making your community a better place.
Thank you for what you do for that.
I'll see you on the flip side when we turn the calendar to 2025, with all the additions that will come—the tactical, helpful, 21st-century classroom that I have here.
Don't forget: Make it a great day.