How presidential elections impact philanthropy

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How presidential elections impact philanthropy

As November 3rd approaches, the nation waits with bated breath for an incredibly long campaign cycle to come to an end. Few wait more expectantly than higher education advancement leaders. With the dueling campaigns gobbling up unprecedented amounts of philanthropic dollars, fundraisers hope for donors’ attention to soon turn back from the national stage to the one on campus.

Yet presidential elections can, in many instances, exert a positive influence on giving overall. They inspire us to donate our time and money to causes we believe in from the local to the federal level. They also serve as an opportunity to assess where we expend those resources when politics stop monopolizing our mindshare.

Advancement leaders can use this opportunity to help both new and existing donors meet their philanthropic goals across the next four years and beyond. Here, we look at donor behavior and stock market activity surrounding presidential elections to better prepare ourselves to serve our donors after November 3rd.

Donor behavior: political giving yields spill-over benefit for higher ed

Through our work with advancement leaders, we often hear fears that political giving will cannibalize nonprofit giving. Surprisingly, the opposite tends to be the case—political donors are often more likely to make additional gifts to nonprofits compared to individuals who don’t give to political campaigns.

While data is sparse for the 2016 contest, looking to the previous presidential election, 2012 saw a 0.9% increase in philanthropy from those who made a federal campaign gift during the election cycle, while there was a 2.1% decline in giving from those who did not make a federal campaign gift.

22%

Small-dollar donors have made up 22% of total campaign fundraising in 2020, up from 14% in 2016.
Small-dollar donors have made up 22% of total campaign fundraising in 2020, up from 14% in 2016.

At the bottom of the giving pyramid, many small dollar donors give for the first time or reassess their charitable giving during the election season. Political donors age 25-36 saw the biggest jump in charitable giving the year following the 2012 election—a 10.8% increase—as compared to a 1.1% increase for people who do not give to political campaigns in the same age range.

This election cycle has seen a significant increase in small-dollar donors with people donating $200 or less, making up 22% of total campaign fundraising—up from 14% in the 2016 election cycle. Young donors, who are most likely to fall into the small-dollar donor category, are being inspired by political campaigns and clearly demonstrating their affinity to give in service of causes they believe in.

On the opposite end of the giving pyramid, billionaires are already heavily involved in both politics and education. During an election year, this group is likely directing a higher percentage of their philanthropic dollars to political causes but will have greater capacity to shift their giving toward education post-election.

We have seen this play out across the past four presidential election cycles. Higher education sees greater returns during the two years following federal elections (8% average annual growth) than the year prior to and year of (4% average annual growth.) With donors’ philanthropic resources freed up—and the policy landscape growing clearer with a new presidential term starting—donors feel more confident making philanthropic gifts to higher education.

Market activity: elections boost returns, catalyzing further giving

Our wealthiest donors tend to be more heavily invested in the stock market than median and lower tier donors—the top 10% of households, after all, own 81% of stock wealth in the United States. This has been especially true during the pandemic as donors look for a more profitable place to stash their money than banks or bonds, given their historically low interest rates. When the stock market rises, fundraising returns tend to follow suit.

Will the result of the upcoming election shake the stock market such that it would negatively impact this group’s ability to give? In the long run, probably not.

If history is our guide, we can expect the stock market will likely rise no matter the outcome on November 3rd. A Dimensional report showed that the market has been positive in 19 of the past 23 federal election years.

Yet growth in the aggregate may mask industry-specific declines. For example, energy and finance industry stocks my falter in anticipation of stricter regulation in the case of a Democratic win; the same is true for the education technology and environmental industries if the Republican party maintains control of the White House.

Whatever the short-term financial fallout of the election, in the long-term across the four years of a president’s administration, growth tends to accelerate. Indeed the final two years of a president’s term tend to produce higher stock market returns than the first two in a phenomenon known as the “presidential cycle.” By the latter half of the administration’s term, the economic agenda has had time to settle in and the incumbent party tends to do what it can to juice up the economy in the hopes of re-election.

The graph below shows the average growth across a number of market indexes during each year of a president’s term going all the way back to George Washington’s first administration.

Average growth of market indexes across the presidential cycle

Average growth of market indexes across the presidential cycle
Source: Fidelity

While the stock market tends to be stronger in the first two years after a Republican wins the White House—8.3% versus 5.8% average growth following a Democratic win,—growth is virtually the same at the end of a president’s four-year term regardless of party—8.6% to 8.8% respectively.

The presidential cycle by party

The presidential cycle by party
Source: Fidelity

Actions for advancement leaders post-election

  • Plan for engaging your wealthiest donors who have political affinity. Political causes tend to take up the wallet and mindshare of this group during a federal campaign cycle, but there may be an opening for education-related philanthropy in the two years post-election. Help MGOs develop creative cultivation strategy for the upcoming window of opportunity.
  • Track stock market trends when making a cultivation plan for wealthy donors. The first half of a new administration may be ideal for a target ask if the market has followed the “presidential cycle” with the years prior seeing strong returns and donors are looking to direct their philanthropic dollars after their political giving goals are met. Move quickly to develop your pipeline during this critical period.

There could not be more uncertainty surrounding the upcoming election in the midst of a once-in-a-generation pandemic. While we cannot predict the economy, we can pay attention to how donors are responding to the call to give to causes they believe in through political candidates. In 2020, they are doing so in historic numbers. Advancement leaders can use these cues to strategically serve new and existing donors after November 3rd and across future election cycles.

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