Laying the Groundwork for Growing Giving

THE IMPORTANCE OF MIDDLE CLASS GIVING

The philanthropy of the world’s wealthiest is significant and has the capacity to be transformative.

CONTENTS

This 2017 report discussed the potential impact of middle class giving across the globe and the challenges ahead.

Executive summary
The polarity of wealth is changing & the rise of the middle class
The importance of middle class giving & quantifying the potential of middle class giving
The urgent need to drive a culture of giving
Recommendations and references

A FOCUS ON HNW AND UHNW

When thinking about motivating people in fast growing emerging economies to give, there is a tendency to focus on HNWIs and UHNWIs. Assessing trends in HNWI giving is notoriously difficult. Firstly, many wealthy donors choose not to disclose their donations, meaning that data is only ever a snapshot of giving. Secondly, a small number of extremely large gifts can skew the dataset dramatically. For instance, the Coutts Million Dollar Donor Report 2016 saw the total amount given in donations over $1 million grow from $894 million in 2014 to $34 billion thanks to a pledge of $32bn from HRH Prince Alwaleed Bin Talal Bin Abdulaziz Alsaud. Clearly then, trends in giving amongst this demographic should be looked at with some scepticism.[20] In spite of these methodological barriers, we can say with confidence that the philanthropy of the world’s wealthiest citizens is both significant and has the capacity to be transformative in scale.

Targeting these wealthy individuals appears to be logical at first glance for a number of reasons. Firstly, in often very unequal societies, these people can be seen as low hanging fruit to the extent that a relatively small number of wealthy donors could yield large sums of philanthropic money. In addition, many would point to the history of philanthropy in countries with long established philanthropic traditions and the trailblazing captains of industry who popularised giving through public acts of generosity as the catalysts for creating cultures of giving. However, on closer inspection, it would seem that focussing energy solely on encouraging the wealthy to engage in philanthropy in emerging markets misses a key opportunity. Rather, the evidence seems to suggest that encouraging mass engagement in giving would provide the optimum outcome.

GGG 1 Fig 6 relationship between proportion of middle and top quintiles

Fig 6 displays data from 131 countries in the CAF World Giving Index 2017 on the proportion of people who stated that they had donated money to charity in the past month.[21]

Specifically, the graph shows a remarkable correlation (0.94) between the propensity to give of the people in the middle quintile and top quintiles for income. Though correlation is strong between all income groups, it is weaker between the top and bottom quintiles (0.83). It is not at all surprising to see a correlation here of course, given that even though there are likely to be differences between the willingness to give across the income spectrum in a given country, all live within the same country context, under the same laws, and with the same broad national traditions.

This graph does however suggest two striking things:

  1. Local context not only plays a very significant role in the likelihood that people will donate, it does so to a similar extent across the income spectrum.
  2. Relatively few outliers and a very strong and significant correlation suggest that assumptions that a given initiative or policy change could have an isolated impact on the giving of one income group – at least in terms of these very broad groups – is questionable.

Fig 7 plots the proportion of people in the top 20% of income distribution that have given to charity against the difference between their giving and that of the middle 20%. In this way we are able to see more clearly whether countries where the wealthy are far more likely to donate than people in the middle quintile of income distribution represent more or less generous societies.

The graph, which may be surprising to many, shows that the greater the lead that the top 20% have over the middle 20% in their propensity to give, the less both groups give overall. Indeed, this relatively robust and negative correlation (r=-0.21647 and p= 0.006 one tailed and 0.013 two tailed) shows that the countries where the rich give the most tend to be nations where the middle classes are just as likely, or even more likely to give.

Strikingly, the three countries with the highest proportion of people in the top 20% of income distribution to have donated to charity in the past month (Myanmar 89%, Indonesia 81% and Malta 77%) are all countries where the middle quintile outperformed the top (by 4%, 4% and 1% respectively).

GGG 1 Fig 7 relationship between the gap in the proportion to have given

It is not possible to isolate causation in the relationship between the propensity people in middle and top quintiles by income distribution. On one hand, it could be that wealthier people influence an uptake in a wider culture of giving only when enough of that influential group become donors themselves – thus explaining the wider gap between income groups in the countries with low levels of engagement in giving. If this is true, it suggests that focussing on encouraging the wealthy to engage in philanthropy could be an effective way to encourage the whole population. However, there is another interesting and rarely proposed explanation: that the causation in fact runs the other way, and that increasing middle class giving represents a far more effective approach to boosting the overall culture of giving and encourages participation from wealthier people.

We can demonstrate that there are no examples of nations in which the top 20% of the income distribution are very likely to donate but those in in the middle quintile are not: of the 19 countries where 60% or more of the top quintile have donated to charity in the past month, none see giving fall below 50% amongst people in the middle quintile. Whilst one could draw the conclusion that the wealthy are influencing those in the middle classes, one could equally conclude that the middle classes are creating through their giving a social expectation that with wealth comes the responsibility to give back. Certainly, the fact that it does not appear possible to motivate high levels of generosity amongst the wealthy without achieving similar or even higher levels of engagement amongst those near the median income at least suggests that such an explanation may have merit.

QUANTIFYING THE POTENTIAL OF MIDDLE CLASS GIVING

Assessing the potential of middle class giving is of course problematic, but nonetheless important. Only by highlighting the scale of the opportunity for society were we to create a suitably enabling environment to engage ordinary citizens in civil society can we hope to motivate governments, philanthropic funders and companies to act. The financial strength of civil society represents only part of, and by no means the greatest part of its resources; volunteering, protesting, joining membership organisations and unions, expressing their views and participating in citizen journalism, grassroots movements and initiatives are all important measures. However, it is undeniable that a civil society which is able to address some of society’s most pressing problems requires financial support. 

In order to quantify the potential for global middle classes to fund the future expansion of civil society we simply need to take predictions of middle class spending by 2030 in the work of Homi Kharas (as detailed above) and assess how much money could be yielded were middle class people increase the proportion of that spending that they dedicate to charitable giving. To illustrate this potential, we can use the charitable giving as a proportion of GDP in various other countries as benchmarks (though not a perfect proxy for middle class spending).

GGG 1 table 2 potential annual values for global middle class

As Table 2 shows, were the vastly expanded global middle classes of 2030 to dedicate the same proportion of spending to charitable giving as the USA gives as a proportion of GDP (1.44%) then they would generate $919 billion. Such a figure would be greater than the entire GDP of Turkey ($857 billion), Netherlands ($771 billion) or Saudi Arabia (646 billion) in 2016 according to the World Bank.[22]

Clearly, setting such a target for emerging economies would be extremely ambitious; but there are signs that the growth in middle classes in such countries is already leading to millions of new middle class donors. For instance, according to the CAF World Giving Index 2016, although the proportion of people giving money to charitable organisations increased by only 0.3 per cent overall, the proportion of people giving to charity in emerging economies grew by 2.1 percentage points in 2015 having grown by 11 percentage points in 2014.

Looking for more conservative benchmarks, middle class giving at the levels seen in the UK (0.54%) would still yield $345 billion per year which is more than double the record $147 billion given in official development assistance (ODA) by all 35 members of the OECD.[23]

Whilst such targets are clearly ambitious, they could well be achievable. Charitable giving in India is at 0.37% of GDP. Given the growth expected in its middle class spending power and assuming those people give at a similar level, it may well see charitable giving by the middle classes reach as much as $40 billion even without extra effort to motivate increased giving.[24]

However, it is clear that to reach this benchmark globally, huge changes must be put in place to encourage mass engagement in charitable giving by the emerging Chinese middle classes and other growing economies with similarly low levels of giving.