Phases in the Lifetime of a Sophisticated Donor
Phase 1: The Exploration Phase
This phase generally begins either while the donor is still in school or recently graduated. In this phase the donor has more expendable income than he/she ever has in his/her life, but it is not nearly enough to make major contributions to even one, much less many, organizations. Often this donor will give $5-$50 to causes he/she cares about, more to feel as if he/she is part of something bigger, rather than to make a true quantifiable impact. This donor is often not a recurring or annual donor but prefers to donate here and there to organizations that catch his/her attention. As he/she learns more about the organizations he/she funds, he/she narrows down this list of organizations.
Giving Vehicle: Online Donation Platforms
Phase 2: The Stability Phase
This phase begins when the donor receives a big promotion, earns a dream job, or gains financial stability the likes of which he/she has not yet had in his/her life. The donor often begins investing in the stock market, mutual funds, futures or other financial instruments intended to bring about wealth in the next decades of his/her life. The donor may even employ the services of a financial advisor, and for the donor’s philanthropic needs, employ the services of a Donor Advised Fund. The donor has also learned valuable lessons from the Exploration Phase and generally knows what he/she is looking for in an organization to support philanthropically. Most donor advised funds require a minimum $5,000 initial deposit[1], and until this phase, donors are unable to make that substantial of a donation/deposit.
Giving Vehicle: Donor Advised Fund
Phase 3: The Impact Phase
This phase coincides with the accrual of wealth that only happens over many years if the Stability Phase. While Phase 2 is characterized by financial stability, the donor is still troubled by everyday bills, and expenses such as a large mortgage, and putting children through school. Once the donor has reached a point where income is still increasing, but expenses (relative to what they have been) are decreasing, they can truly begin to make larger impacts with their newly available wealth. Many donors will set up endowments or make multi-year major gift pledges to the organizations they have come to support the most. They begin thinking about what is important in their life and use their wealth to make real differences. Many endowments require between a $10,000 - $25,000 initial investment to earn enough interest for most organizations to accept.
Giving Vehicles: Endowments, Endowed Funds, Multi-Year Major Gift Pledges
Phase 4: The Structural Phase
In this phase a donor has accrued enough wealth and has reduced his/her debts and liabilities to the point that he/she can set up a Foundation. This phase can be, and often is skipped by sophisticated donors that never truly reach this threshold. It is a relatively rare threshold to pass. The donor sets up structures and financial tools to ensure that the wealth the donor has accrued, not only makes an impact now, but continues to make an impact well into the future. It usually takes over $250,000 in assets to set up a private foundation.[2]
Giving Vehicles: Foundation, Family Foundation
Phase 5: The Legacy Phase
This phase takes place as the donor nears the end of his/her life. It is less about making gifts now and more about preparing his/her will and assets to be directed where the donor desires upon his/her death. In this phase the donor uses all of the lessons he/she has learned over a lifetime of philanthropic giving to direct his/her final gifts to the place(s) that will mean the most to the donor’s legacy.
Giving Vehicle: Will and Estate
[1] https://www.consumerreports.org/charitable-donations/donor-advised-funds-things-to-know/#:~:text=Minimum%20required%20investments%20vary%E2%80%94you,little%20research%20to%20find%20one.
[2] https://www.kiplinger.com/article/retirement/t037-c000-s002-start-your-own-charity.html#:~:text=For%20instance%2C%20you%20should%20expect,private%20foundation%20worth%20the%20cost.
