In April 2020, Third Sector published an analysis of the state of reserve funds among UK charities. The article cited that only a quarter had enough reserves to last three months. Fifteen months later, the question to ask is how many of those charities survived?
Granted, many charities have anecdotally reported that 2020 was their best year yet but has increasing digital fundraising tactics, furloughing staff, and dipping into reserves been enough?
What happens if a fourth wave hits? Or maybe another crisis hits next week? Have charities set a plan to refill those reserve funds?
How can this be done in a way that ensures regular programs and operations are funded?
This is where legacies come in. When we think of legacy fundraising, it’s clear that cash is not king. In fact, we know that cash usually means smaller gifts. As individuals, we recognize that our assets – whether they be real estate, investments, stocks, pension plans, or life insurance – are great to have to help weather the storm (economic recession, loss of employment or even a pandemic!).
For charities, that translates into endowment funds. In North America, endowment funds are the norm for a large number of charities with legacy programs. In other parts of the world, not so much.
For those charities with endowment funds, they tend to opt to endow a percentage of every legacy gift. That percentage can vary from 5% to 50% – depending on the board policy.
I can already hear it: but my donors will never go for that! Yep, I’ve had many fundraisers say that when I’ve brought up the idea of starting an endowment fund. Here’s the thing – the best part is that many donors absolutely love the idea. Why is that? Because it gives them the chance to realize their symbolic immortality through the endowment fund.
The what now?
Symbolic immortality is based on the work of social psychologist Robert Jay Lifton who talked about our identity formation and how it can continue beyond death. He basically argued that healthy individuals seek a sense of life continuity, or immortality, through symbolic means.
Endowment funds enable donors who leave a legacy to live symbolically and in perpetuity and that is a powerful key selling (read: legacy) proposition!
Does this mean that charities should forgo reserve funds? Absolutely not! In fact, it’s a requirement in many countries. However, you might want to have a conversation with management about how legacy income is used. Maybe your charity may consider using 50% of legacy income for current programs, endowing 30% and setting aside 20% in reserves. Make that part of your legacy conversations and see how donors will react.
My guess is those donors that are financially and fiscally savvy (which most legacy donors are) will understand and be happy to hear the organization is taking the necessary steps to ensure its long-term sustainability.