The Pentera Blog
Stock Market Downturn May Affect Charitable Giving, but Perhaps Less Than You Think
It is accepted wisdom that charitable giving is linked to stock market performance. As Patrick Rooney, professor of economics and philanthropic studies at Indiana University's Lilly School of Philanthropy, told The Chronicle of Philanthropy, "The S&P 500 is one of the best predictors of foundation grant making and also one of the best predictors of household giving."
Similarly, Giving USA noted in a December 2021 blog post: "Because philanthropic giving is highly correlated to the strength of the stock market..., we anticipate a robust year of giving ahead."
As it has turned out, stocks have fallen in 2022 with the S&P 500 down 21% and the Dow Jones Industrial average down 15.8% through June. If this trend continues, and historical data is any guide, charities will see fewer donations in the year ahead.
The news, however, may not be as bad as you might think.
According to a 2010 study by two University of Chicago economists, charitable giving is more responsive to stock performance when stocks go up than when stocks go down. Looking at time-series data from 1967 through 2008, their paper, "Charitable donations are more responsive to stock market booms than busts," shows that, while giving declines following weak stock market performance, the correlation is not as pronounced as when stock prices rise. This, they speculate, may be because 1) charitable donations become more highly valued during an economic downturn, 2) social pressure may keep donors giving at least what they gave the year before, and 3) donors are more inclined to make a gift of windfall earnings, so upward stock performance naturally shows a stronger correlation than downward performance.
Whatever the case, a rough 2022 for stocks could mean less giving ahead but not as much less as nonprofits might fear.
