There is an old saying that goes “Rough seas make stronger sailors.” The same can be said of many nonprofits trying to further their mission during economic uncertainties and out-of-control inflation.
Donor-advised funds (DAFs) can provide a means of support for clients’ favorite nonprofits during periods of high inflation.
Here are some ways giving accounts can help nonprofits navigate the challenges posed by high inflation:
Donor-advised funds are established with charitable contributions from donors. These funds are invested and grow over time. During periods of high inflation, the value of money decreases, and the purchasing power of funds can erode. However, if DAFs are invested wisely, they can potentially counteract the effects of inflation by generating returns that outpace inflation rates. This allows nonprofits to receive donations that have maintained or increased their value.
2. Long-Term Planning
Inflation can make budgeting and financial planning challenging for nonprofits. DAFs offer the advantage of long-term planning because they are not subject to immediate distribution. Nonprofits can work with donors to strategically time the disbursement of funds, allowing them to account for inflationary pressures over time and plan for impactful projects in the future.
3. Funding Flexibility
Nonprofits can collaborate with donors to adjust the timing and number of disbursements from DAFs based on changing economic conditions. For instance, during periods of high inflation, donors and nonprofits may choose to release larger dollar amounts from DAFs to counterbalance the decreased purchasing power of money. This flexibility can be crucial for maintaining the effectiveness of nonprofit initiatives.
4. Investment Strategies
Nonprofits can collaborate with donors to invest DAF assets in ways that provide protection against inflation. Certain investment strategies, such as investing in assets that historically perform well during inflationary periods (like real estate, commodities, or inflation-protected bonds), can over time help preserve and even enhance the value of giving accounts.
5. Emergency Relief
High inflation can lead to increased economic hardship for vulnerable populations. Nonprofits may find that DAFs can play a crucial role in providing emergency relief during such times. Donors can mobilize funds from their DAFs to support immediate needs and aid communities affected by the economic challenges of inflation.
6. Sustained Support
DAFs offer the advantage of consistent and sustained support for nonprofits. Even during times of economic volatility, donors can continue to contribute to their DAFs. This ongoing support can help nonprofits maintain their operations and deliver essential services despite the challenges of inflation.
7. Educational Efforts
Nonprofits can proactively engage with donors to educate them about the impact of inflation on charitable giving. By sharing information about the potential erosion of the value of donations over time, nonprofits can encourage donors to consider larger contributions or strategic disbursement schedules to ensure their philanthropic efforts have the intended impact.
At the end of the day, donor-advised funds can provide a stable, flexible, and potentially inflation-resistant source of support for nonprofits during periods of high inflation.
Collaborative planning between donors and nonprofits combined with strategic investment decisions can help maximize the positive impact of DAFs on nonprofit initiatives.