How Nonprofits and Families Can Adapt to Next-Gen Philanthropy

In partnership with Bloomberg Media Studios

A new generation of donors is challenging traditional views on philanthropy and family giving.

Philanthropy is facing a sea change, as a younger generation of donors, with different ideas on how to change the world, come into their prime. Millennials are now the largest generation in the U.S., and, together with Gen X, are poised to receive a wealth transfer of more than $30 trillion from Baby Boomers over the next three decades.

This new generation of donors is more diverse, more concerned with environmental and social issues and more distrustful of traditional institutions, characteristics that are ushering in a new era of accountability for nonprofits.

“There’s this evolving view of how philanthropy can and should be the catalyst for change in our society. The younger generation is starting to think about this wealth transfer and how there’s a real opportunity to make a transformational change,” says Crystal Thompkins, Head of Philanthropic Solutions at BNY Mellon Wealth Management.

Advisors are grappling with how to guide nonprofits as they try to meet new demands from younger donors, and how to resolve generational differences among families making and managing charitable contributions.

TRANSPARENCY IS NON-NEGOTIABLE FOR NONPROFITS

Traditional donors often established long-term funding relationships with nonprofits, with minimal oversight, but younger donors today don’t necessarily operate that way, according to Thompkins.

“They think, ‘This organization has been around since my grandfather. What have they accomplished in that time? Maybe it’s time to look for different solutions,’” Thompkins says.

Nonprofits are now expected to be transparent about their performance. Traditionally, charitable organizations were judged based on how much money they brought in, and what percentage was spent on overhead and administration. But today’s donors expect to see in detail how their dollars are actually furthering their cause. Donors, especially younger contributors, also are turning to modern tools—apps and various platforms—to do their due diligence on organizations.

“Nonprofits these days must be more intentional and strategic in their communications to demonstrate their impact,” says Thompkins.

One way that nonprofits can demonstrate their impact is to share more stories from people who are directly benefiting from their work. Organizations also need to have clearly defined goals that are quantifiable and measurable, so they can point to their track record of achievement. 

It’s also a good time for nonprofits to do rigorous internal due diligence, given today’s heightened focus on diversity, equity and inclusion. Nonprofits should ensure they’re operating in alignment with their mission and values, and if not, have a plan to close gaps and demonstrate their progress in doing so.

Arts & cultural organizations may find it challenging to attract new, especially younger, donors given the focus on larger societal issues. But, according to Thompkins, if they find opportunities to collaborate with organizations working to address those issues, they may discover creative ways to align their work to have a larger societal benefit.

HOW TO MINIMIZE FAMILY FRICTION

Advisors are also seeing a big generational gap when it comes to ideas about what philanthropy means. Baby Boomers tend to have more traditional views that keep investing and charitable giving separate; by contrast, young donors have broader ideas about making an impact and are more willing to blur the lines between charities and companies.

One example is the growing interest in impact investing, the practice of funding for-profit companies that are aligned with a specific cause. Advisors are continuing to educate themselves and clients about how to integrate corporate investing into a giving strategy, through thematic investing and negative screening for performance on environmental, social and governance (ESG) issues.

These different ideas around philanthropy can cause friction among family members and create challenges around how involved family members should become in the nonprofits they support, or how much investment should be made with social action in mind.

“Whenever you’re talking about different personalities, different viewpoints, you’re going to have some friction,” says Kristin Heger, Senior Wealth Manager at BNY Mellon Wealth Management, who works with high-net-worth individuals and family offices.

Friction can be inherent in the way family foundations are set up, as well. Families have established frameworks around philanthropy—such as investing only in 501(c)(3) organizations—that don’t always work with new ideas about impact investing, political causes, or direct funding to individuals in urgent crises, such as COVID-19. “A lot of families have established frameworks that they use for their giving strategy. And some of those are maybe a little bit dated,” Heger says.

When dealing with conflict, advisors can encourage families to focus less on the “how” and more on the “why.”

“There might be some serious disagreement on the ‘how,’ but if we can redirect and reframe that conversation about why this is important to them as a family, and get some agreement around the values, then that really goes a long way toward mitigating some of that contention,” says Thompkins.

The next generation’s attitudes about giving have staying power, according to the Dorothy A. Johnson Center for Philanthropy, and that means both advisors, nonprofits and families must also adapt to these new ways of contributing. The good news, the center says, is “that the next gen is anything but apathetic.”

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