Charitable giving must be part of your financial planning
● If you’ve ever thrown money at a problem or a person with problems, you’ll know that imprudent giving can have harmful consequences. The same can be said of charitable giving in the absence of a financial plan.
Charles Pitt, a private client wealth manager at Alexander Forbes Wealth, says good intentions can throw off long-term wealth planning.
The most recent edition of the Nedbank Private Wealth Giving Report revealed that while 88% of local high-net-worth individuals donated money, time or goods to the combined value of R7-billion to charities in 2015, more than half of these givers did not have a budget or planned approach to their giving.
“While benevolence of any kind is admirable, indiscriminate giving can be ineffective — both for that of the charitable cause and the aspirations behind the reason to donate,” says Kerrin Land, CEO of Old Mutual Wealth.
Land says high-net-worth individuals should seek advice from an accredited financial planner who can help them ensure that their charitable giving is maximised for the beneficiaries and aligned with the personal financial and life goals of the benefactor.
Sue Torr, MD of Crue Invest, says that while giving to others feels good, it should not be done at the expense of your financial security. “We encourage our clients to secure their own financial futures, and thereafter to allocate their charitable spend.”
As a benefactor, you also need to support causes that make a sustainable difference. Some 70% of high-net-worth givers did not measure the impact of their contributions, the 2016 Nedbank Private Wealth Giving Report found.
Torr says Crue’s clients are advised to choose their charities carefully, decide how much they are able to give, build their donations into their financial plan as a budget line item, and then commit to reviewing their spending each year. Since personal circumstances change over time, it’s likely that charitable donations and interests will change as well.
She says that once these are budgeted for in a well-constructed plan, it is highly unlikely that charitable donations will erode your wealth, especially if you review your financial plan annually with your adviser.
People are motivated to give for different reasons, but the majority of high-net-worth individuals donate because they believe that, in doing so, they are making a difference, or for the fulfilment and satisfaction of giving. Only 18% are driven mainly by tax benefits, according to the 2016 Nedbank Private Wealth Giving Report.
Prince Siluma, head of philanthropy at FNB, says true philanthropists are not motivated by the tax benefits or emotional benefits of giving, but rather by the desire to effect sustainable social change and improve society.
A better life
Donations made to approved public benefit organisations may qualify for a tax deduction. Pitt says that to get the deduction of up to 10% of your taxable income, you should obtain a section 18A certificate from the organisation to which you have donated.
Pitt says that you should apply the same principle to your giving as you do to the rest of your financial plan: “Use the money you have to get the best life possible. With a little planning, you’ll make life better for those around you as well.”
If you can’t give as much money to a cause as you would like to, think about supplementing a smaller contribution with regular volunteering, he says.
Torr says that where charitable giving takes the form of pro bono work or a reduction in fees, you need to fully understand the impact on your cash flow. “For instance, if an attorney elects to take on pro bono work for charity, she needs to factor into her planning the number of billable hours she is donating free of charge. The result of her charitable giving will be a reduction in the fees that she is able to charge in a month.
“Charitable giving in the form of pro bono work, specifically in cases where professionals charge per hour, must be included in one’s monthly budget so that it can be monitored and adjusted when necessary.”
For most people who want to give — whether it is their money, time or talents — finding the right cause is usually a struggle: 67% of high-net-worth givers said that identifying where to donate was their greatest challenge, according to the latest Giving Report.
To better serve philanthropic givers — individuals and corporations — Nedbank Wealth and Trialogue, consultants in corporate social investment, set up the Trialogue Knowledge Hub, a free online resource relating to philanthropic giving in South Africa.
Trialogue.co.za/knowledgehub provides an overview of South African nonprofit organisations, research, recommended reading, and notices about upcoming philanthropy events.
You could also consider the Citadel Philanthropy Foundation, which enables individuals and corporations to donate money to the foundation, and make recommendations on how it is invested and distributed.
Jean de Villiers, head of philanthropy at Citadel, says the foundation was set up five years ago out of the desire to approach philanthropy in a more thoughtful manner, ensuring the sustainability of charitable projects.
The foundation’s focus is on education, entrepreneurship, the environment and health. Donors are able to select beneficiaries from the foundation’s list of trusted charities or to elect those that they feel passionate about.
The foundation supports some 60 beneficiary organisations, ranging from the Cape Leopard Trust to investigative journalism organisations amaBhungane and Scorpio.
De Villiers says that one of the main advantages of giving via the foundation is good governance.
“The knowledge that there is an experienced financial house looking after the funds and ensuring that both the foundation and any beneficiaries adhere to strict rules and regulations offers donors comfort and ease of mind,” he says.
For corporate donors, the Citadel Philanthropy Foundation represents a cost-effective alternative to setting up and covering the administrative and personnel costs of a traditional foundation, and is further able to offer strategic advice for structuring socioeconomic development spending as well as issue broad-based BEE points.