What is philanthropy in finance, and why does it matter?

Philanthropic giving to worthy causes is an inherent part of the human condition. If this is something you do, or have thought about, you’re in good company. Andrew Carnegie, Jamsetji Tata, Warren Buffett, George Peabody and countless others have all made names for themselves as philanthropists.

Moreover, these days around a third of Brits give money to charity regularly. And last year they donated £10.7bn – mostly to organisations supporting animal welfare, children or young people and medical research.[i]

Giving can also be an integral part of a wealth portfolio, marrying financial returns with a sense of accomplishment and purpose.

Ancient beginnings, modern purpose

Giving selflessly all started with Prometheus – according to myth.

The ancient Greek god gave humans the gift of fire, to help civilise them. But because this really wasn’t fitting behaviour for a god, his king Zeus accused Prometheus of philos (loving) and anthropos (humans) and sentenced him to eternal torment.[ii]

Fast forward several thousand years – through the Islamic practice of awfaq, the British Sunday school movement, and countless other examples – and no-one gets punished with eternal torment for helping others. Quite the opposite.

Modern philanthropy is, in its simplest form, giving without expectation of financial return.

You do get something out of it though. Research shows that 96% of givers do so out of a sense of duty, 75% are passionate about a specific cause, almost as many (71%) cite faith or religion as a motivator, and 61% because they’ve been motivated by personal experiences.[iii]

These are things that chime with our experiences at First Wealth, as we support clients on their wealth journey – which so often includes a philanthropic component.

Types of giving

Philanthropy can involve money, time, resources, or assets – all things that might typically attract a financial value.

It could be a modest monthly donation to charity – for example, the National Trust will gladly receive as little as £5 a month. It could involve establishing a trust or foundation with a specific purpose – and the National Trust again is a good example, given its origins in preserving Britain’s heritage.[iv]

Or it could even mean something like allocating office space to a worthy organisation in need … though it seems to us the National Trust has plenty of properties.

Right now, we’re seeing three notable themes in our clients’ philanthropic work:

• Righting wrongs – for many the war in Ukraine is a good example, threats to biodiversity will be another,
• Emotional giving – when we act in search of a sense of purpose, we are often driven by emotion, rather than by data, and this is where personal experience is often a driver,
• Counteracting economic forces – the cost-of-living crisis has clearly affected many people, families, and communities, and this is one example of the way philanthropists try to seek a sense of balance in the world.

Including philanthropy in your portfolio

We’ve long worked with clients to help them implement their values across wealth and giving.

But now, some individuals are starting to come to us for advice on giving.

They already have their assets allocated appropriately, they and their loved ones are taken care of, but they need advice on ensuring a certain proportion of wealth or income is directed philanthropically.

However, it’s far more common to have a philanthropy conversation with clients towards the end of the financial planning process.

In other words, we create an evidence-based plan for your wealth and, once this is clear and agreed, then we pop the question: ‘is giving important to you?’

If it is, we focus on what you’re able or willing to give – be it assets, resources, or that spare section of your company’s warehouse – and where you want to push those resources – from bigger issues like medical research to more personal sources.

And when you do give…

The chances are that it will be tax efficient.

No matter how much a government might need money, they tend not to raid charity donations.

So, this means that you can use Gift Aid to reclaim 25% tax from HMRC. There’s a bit of form filling – but we help clients with this. Moreover, if you’re a higher- or additional-rate taxpayer, you can claim further tax relief through your self-assessment tax return.

It’s a similar story with legacies. For example, if you structure your will to ensure 10% of taxable wealth goes to charity, your estate will be eligible for a reduced rate of inheritance tax.

Clearly, such tax beneficial add-ons will appeal to some more than others – but that’s the point: philanthropy is a very personal thing.

But what’s clear is that it can help you acquire a sense of purpose quickly, simply, and directly.

[i] https://www.cafonline.org/docs/default-source/about-us-research/uk_giving_2022.pdf

[ii] https://support.bl.uk/Files/78277f4d-dd75-4775-b71a-acf600b450b2/British-Library-Philanthropy-digitised-exhibition

[iii] https://www.cafonline.org/my-personal-giving/long-term-giving/resource-centre/why-do-people-give

[iv] https://www.nationaltrust.org.uk/who-we-are/about-us/our-founders

This document is marketing material for a retail audience and does not constitute advice or recommendations. Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested.