The world faces countless problems, but fortunately it’s also full of people stepping up to do what they can to help fix those problems.
Philanthropists are people who use their financial resources to support worthy causes to help make the world a better place. While philanthropy might remind you of ultra-wealthy donors, it’s not something that’s reserved only for the very rich.
What Is Philanthropy?
Philanthropy is an organized effort designed to bring about something useful for society. It’s hardly a modern invention, as philanthropy has been part of society and human culture since ancient times.
U.S. history is full of famous philanthropists, such as John Harvard donating half his estate to fund Harvard University in 1638, or Andrew Carnegie creating more than 1,600 libraries throughout the country. More recently, Bill Gates and Warren Buffett have pledged to donate the majority of their wealth for causes like eliminating poverty in developing nations.
Philanthropy doesn’t only have to involve giving away massive amounts of money. Mother Teresa, a Catholic nun with no wealth, became a famous philanthropist known for dedicating her life to charitable work in India.
According to Heather Fortner, CEO of SignatureFD, a wealth management firm headquartered in Atlanta which specializes in philanthropic strategies, “Philanthropy is the idea of using your wealth to make a meaningful, lasting impact by finding ways to leverage your resources to further a purpose.”
Fortner believes the key to philanthropy is connecting with a cause you care about personally.
“What makes your heart break, what keeps you up at night? It could be animals for one person, the environment for another or access to higher education for someone else,” says Fortner. “There’s no shortage of need in the world.”
Is Philanthropy Different from Charity?
Philanthropy and charity have a great deal in common. They are both ways of giving money, time and resources to help people. However, there are a few important differences.
Stephen Maislin, President & CEO, Greater Houston Community Foundation, says the main difference is in their approach and impact.
“While charity focuses on providing immediate relief to those in need, philanthropy involves strategic and long-term investments in social causes and initiatives,” says Maislin.
For example, charity could mean writing a check to provide books for school children this year whereas philanthropy could mean volunteering with the school board to improve the system over the long term.
“In essence, philanthropy is a more intentional and sustainable way of creating solutions to community challenges and positive societal change,” Maislin says.
In both cases, Americans are extremely generous, donating $485 billion for charity and philanthropy in 2021, according to the public charity National Philanthropic Trust.
The Benefits of Philanthropy
Giving away time and money does good for causes you support. But there are also some less obvious benefits for both donors and society as a whole.
Giving can help you feel good, and studies suggest that these good feelings can improve your health. Those who regularly donate time and money appear to feel happier, are less likely to be depressed, have lower stress levels and lower blood pressure to name a few of the positive health benefits.
“People who give back thoughtfully feel like their lives have more purpose. We’ve seen time and time again, incorporating giving into an overall financial plan creates a much more meaningful life,” says Fortner.
Better Connection to Your Community
Maislin finds that those who commit to philanthropy gain a stronger sense of connection to their community. Not only is this a great way to meet new friends, but he also notes it can lead to valuable networking opportunities for work.
The U.S. tax code encourages people to give by offering generous tax breaks for the donation of money and property like life insurance. You can deduct cash charitable donations up to 60% of your adjusted gross income for the year.
There are also planning strategies, like donor-advised funds, which let you get the tax break now, while still giving you time to figure out where to donate the money later.
Rapid Reactions to Problems
Tiffany Benjamin, CEO of the Humana Foundation, the philanthropic giving arm of Humana, Inc., thinks that philanthropists can react to problems more quickly than the government.
“We saw the effectiveness of this agility during the early days of the COVID-19 pandemic,” says Benjamin. “Before government aid was available, countless national and local philanthropic organizations came together to address immediate needs for people impacted by the pandemic. Philanthropy provided a bridge until federal funds were available to assist in a more holistic way.”
A Force for Innovation
Since philanthropists have more flexibility to test ideas than the government, Benjamin believes “Philanthropy can support, pilot, test and scale innovative approaches to addressing community needs.” If an approach doesn’t work, philanthropists can quickly pivot to try something else.
Drawbacks to Philanthropy
While philanthropy can be a strong force for creating positive change, there are some potential drawbacks when it’s not handled properly.
Focus Might Be Misplaced
Benjamin warns against philanthropists who take action without considering the input or opinions of those they want to help.
“Philanthropy fails when it’s done without taking community input into account,” she says. “It should be about uplifting community voices, not overriding them.”
Before anyone decides to support a social entrepreneurship or non-profit community initiative, they must understand the needs of those who are being served.
With so many problems in the world, Fortner worries it discourages people from engaging in philanthropy.
“It can be incredibly overwhelming every time you turn on the news or go online,” says Fortner. “This inundation and not knowing where to start can even keep people from engaging in a journey of generosity.”
By targeting the cause you care most about and just focusing on it with a plan, you can create a real impact.
When philanthropists give large gifts, they sometimes only do so with specific conditions and strings attached. As a result, this can potentially create more issues for the causes they are supposed to be helping. That’s why some economists support unconditional cash transfers for gifts as the more effective donor strategy.
Shields the Wealthy from Taxes
The tax breaks that support philanthropic giving are so generous they can potentially help the ultra-rich avoid millions if not more in taxes. While they are still giving money away to receive these tax breaks, in some cases the money may have been better utilized as tax dollars to support government programs.
How to Become a Philanthropist
There are many ways to engage in philanthropy in today’s society, and they don’t have to require an exorbitant output of financial wealth.
Maislin says that any ongoing dedication of time, energy and/or money to a cause you care about could be considered philanthropy.
“Participating with local community service projects, serving on a board, and sponsoring a person or group of people in need are all ways to engage,” he says.
When trying to figure out how to help, Fortner advises you to consider how you can share your skills with others, as they can go far beyond financial donations.
“Do you know how to cook? Do you have a vacation home that you could let somebody who is recovering from an illness borrow? No matter your life stage, no matter who and where you are, you’ve got something to give,” she says.
Above all, don’t think you need to be a millionaire to be a philanthropist.
“It’s something everyone can participate in—that can be via donating money, time or expertise,” says Benjamin. The key, she says, is making a long-term commitment.
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