How Millennials Will Change the Face of Philanthropy
Three decades from now a subtle shift will have taken root in our economy. It will start slowly, with billions of dollars changing hands annually, and then move to amass over $14 trillion by 2031. Millennials are expected to be the core beneficiaries of a coming $30 trillion transfer of wealth between generations, according to Accenture’s report on the “Greater Wealth Transfer.” This will impact philanthropy, investments, and possibly even global financial markets.
While many of the recent Millennial millionaires have been self-made—and are often the first generation in their family to hold significant wealth—the crop of wealthy Millennials is about to rapidly expand as family fortunes change hands. With a new swath of billionaires consistently gracing Forbes’ annual list of the world’s wealthy, Millennials will slowly start to change the face of philanthropy. Every year the rising popularity of philanthropic pledges, most notably the billionaire club known as the Giving Pledge, signs up new moguls to commit to giving away half of their wealth to philanthropy or charity.
This begs the question: how will Millennials impact, and possibly disrupt, finance, and philanthropy in the coming decades? Twenty years from now, Millennials could be swimming in up to $30 trillion, and what they do with it will change the financial and charitable giving markets. Here are three trends to look for in the coming decade:
1. FINANCIAL DISRUPTORS
The wealth transfer puts Millennials at the center of finance at a time when trust in financial systems and institutions has eroded. This leaves the finance industry ripe for the kind of disruptive innovation that brought us thousands of songs in our pockets and online shopping. A new wave of philanthropy and Millennial philanthropists are changing the way they invest and distribute their wealth. Socially conscious, impact-driven Millennial investors will be drawn to alternative forms of finance, such as impact investing and online crowdfunding platforms. They prefer to buy sustainable brands, invest in companies that have social impact, and tap into the wisdom of the crowd to source new investment opportunities. These trends are a harbinger of the growing market for social finance products, from both wealthy Millennials and retail investors. Disruptors that reinvent stale financial tools, demystify financial advising, and provide access to social finance products will have a head start with Millennials, many of whom expect managing their finances to be as easy as sending a tweet or downloading a song. If financial services can figure out how to create a financial love child that comes from the marriage of the social and professional network of LinkedIn, the global reach of Amazon.com, and the concept of Google Wallet, mixed with the sage wisdom of Barron’s, you would have a potentially game changing product that would appeal to a built-in market—Millennials.
The rise in wealthy Millennials looking to make their impact will be a big win for social finance tools like impact investing, where investors marry social benefits and profit. Smart advisors will start to develop impact investing products and strategies now. By testing the approaches and tools early, educating a new generation of investors, and developing social finance products that yield competitive returns, finance gurus will be able to effectively respond to the demand for new types of socially conscious, impact driven investment instruments. As Millennials take over their family fortunes, they will be ushering in a new type of investor and donor—one that is likely to bring to mainstream alternative forms of finance that merge social impact with investing.
2. DESIGN PHILANTHROPY
Imagine you have two options that cost the same: buy a house or build one. Which one would you choose? When it comes to wealthy Millennials and philanthropy, current trends indicate they would rather be active architects than passive buyers.
With more billionaires in the United States than ever before, and with the rise in young millionaires looking to make a global impact—and leave a financial legacy—causes and charities seem poised to benefit from the wealth transfer. That is, if they can adapt to the Millennial donor. Millennial philanthropists will want to use their knowledge and networks to tackle intractable problems. This means they will want to get involved in the design phase of philanthropy, working with NGOs, causes, charities—and even governments—to develop innovative solutions for tough problems. As they seek new solutions to global challenges, they will increasingly tap into technology and social networks to source new ideas.
Millennials are more likely to buck traditional models of giving in favor of forging uncommon alliances with new partners and technologies that are uniquely positioned to help tackle the challenge at hand. Pew’s research shows that despite Millennials’ distrust of financial institutions, they believe government should be more involved. In an era of budget cuts, governments have already started courting the next generation of philanthropists. The causes, initiatives, and charities that draw Millennial philanthropists will be the ones that learn how to develop strategic partnerships that harness the private, non-profit, and government sectors for social good.
Organizations that embrace this new breed of philanthropists, getting them involved in solving challenges from the beginning, will thrive. A design philanthropy model, where charities get donors engaged from the idea phase, provides an alternative to the traditional donor and recipient models that, along with the baby boomers, are slowly retiring. The bottom line: creativity will trump dollars. The more creative organizations can get about engaging Millennials from the design phase, as opposed to approaching them later to only fund an initiative, the more likely they are to appeal to Millennial philanthropists.
3. HELICOPTER DONORS
Wealthy Millennials will usher in a new style of philanthropy that mirrors their upbringing. A generation raised by helicopter parents, those heavily-involved parents known for hovering over a child’s every move, Millennials are more likely to want to be involved in the decision-making process. As donors, they will want to be actively involved in the strategy and impact of the causes they support. Expect them to seek out causes they believe they alone can have a major impact on (think Bill Gates and the eradication of malaria). While Bill Gates is not a Millennial, the concept of using your wealth and influence to solve major global challenges has become a model for wealthy Millennials looking to develop their financial legacy—early.
Millennial philanthropists will be a different kind of donor. With pledges of a substantial portion of their wealth, will come increased involvement and expectations from Millennial donors. Impact they will pay for; charity, not so much. Millennials will want to see results and be able to demonstrate impact beyond prescribed surveys of outputs. Traditional ties to financial advisors and trust in institutions has eroded for Millennials. Despite this trend, Millennials still have confidence in an activist government and are likely to consider government an important partner. For charities and causes looking to attract Millennial donors, they will need to have strong partners that can help them demonstrate impact and bring an added layer of accountability to the table. Millennial philanthropists will gravitate to causes and organizations where they believe they alone can make a valuable contribution, beyond just giving a contribution.
PASSING THE BATON
While Millennials are slotted to be the primary beneficiaries of the wealth transfer, philanthropies will benefit from high-profile efforts to have billionaires pledge their fortunes to social good while they are still alive. The Giving Pledge may be the earliest sign of a growing trend towards planning for social impact—and a financial legacy—earlier in life.
As the wealth transfer slowly takes shape, philanthropies will need to adapt to a new kind of donor. They can start by engaging Millennials and getting them involved in their causes. This year’s annual “Giving USA” report takes note of an interesting new trend: a decline in Millennials volunteering their time. If the next generation does not have the hands-on experience of seeing and serving, they are less likely to give. Causes need to start early and work to engage Millennials, connecting them to volunteerism opportunities that will allow them to use their skills and see first-hand the impact of a cause’s mission.
In a world where fine lines are drawn between investment and charity, sits social finance. Wealthy Millennials are more likely than any previous generation to dismantle traditional investment portfolios and pivot their resources toward investments that are consistent with their values and interests. Expect impact investing, social impact bonds, equity crowdfunding, and other social finance tools, currently considered niche, to become customary for Millennials. The growing appetite for investments that also yield a positive social impact means that the future of finance is due for another shake up. And this time, its outcomes will rest in the hands of Millennials.
Remember Y2k, the super-hyped, albeit defunct, warning that the world’s digital infrastructure would stop working at the stroke of midnight? While the hype of Y2k has become a marker (albeit jokingly) of the moment of transition into the new millennia, not all changes in society are as clearly marked as the dawning of a new millennia. A financial baton is being passed on from the baby boomers, the largest generation in U.S. history, to the cautious, yet socially conscious digital natives of the Millennial generation. This may seem like Y2k hype now, but this subtle, yet measurable shift will slowly change the face of philanthropy and finance.
Daniella Foster is Co-founder and CEO of the Emergent Leaders Network and Director of Public-Private Partnerships at the State Department.
This article was originally published in the Diplomatic Courier's September/October 2014 print edition.
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Millennials Rush In; Social Economy Booms
September 16, 2014
How Millennials Will Change the Face of Philanthropy
Three decades from now a subtle shift will have taken root in our economy. It will start slowly, with billions of dollars changing hands annually, and then move to amass over $14 trillion by 2031. Millennials are expected to be the core beneficiaries of a coming $30 trillion transfer of wealth between generations, according to Accenture’s report on the “Greater Wealth Transfer.” This will impact philanthropy, investments, and possibly even global financial markets.
While many of the recent Millennial millionaires have been self-made—and are often the first generation in their family to hold significant wealth—the crop of wealthy Millennials is about to rapidly expand as family fortunes change hands. With a new swath of billionaires consistently gracing Forbes’ annual list of the world’s wealthy, Millennials will slowly start to change the face of philanthropy. Every year the rising popularity of philanthropic pledges, most notably the billionaire club known as the Giving Pledge, signs up new moguls to commit to giving away half of their wealth to philanthropy or charity.
This begs the question: how will Millennials impact, and possibly disrupt, finance, and philanthropy in the coming decades? Twenty years from now, Millennials could be swimming in up to $30 trillion, and what they do with it will change the financial and charitable giving markets. Here are three trends to look for in the coming decade:
1. FINANCIAL DISRUPTORS
The wealth transfer puts Millennials at the center of finance at a time when trust in financial systems and institutions has eroded. This leaves the finance industry ripe for the kind of disruptive innovation that brought us thousands of songs in our pockets and online shopping. A new wave of philanthropy and Millennial philanthropists are changing the way they invest and distribute their wealth. Socially conscious, impact-driven Millennial investors will be drawn to alternative forms of finance, such as impact investing and online crowdfunding platforms. They prefer to buy sustainable brands, invest in companies that have social impact, and tap into the wisdom of the crowd to source new investment opportunities. These trends are a harbinger of the growing market for social finance products, from both wealthy Millennials and retail investors. Disruptors that reinvent stale financial tools, demystify financial advising, and provide access to social finance products will have a head start with Millennials, many of whom expect managing their finances to be as easy as sending a tweet or downloading a song. If financial services can figure out how to create a financial love child that comes from the marriage of the social and professional network of LinkedIn, the global reach of Amazon.com, and the concept of Google Wallet, mixed with the sage wisdom of Barron’s, you would have a potentially game changing product that would appeal to a built-in market—Millennials.
The rise in wealthy Millennials looking to make their impact will be a big win for social finance tools like impact investing, where investors marry social benefits and profit. Smart advisors will start to develop impact investing products and strategies now. By testing the approaches and tools early, educating a new generation of investors, and developing social finance products that yield competitive returns, finance gurus will be able to effectively respond to the demand for new types of socially conscious, impact driven investment instruments. As Millennials take over their family fortunes, they will be ushering in a new type of investor and donor—one that is likely to bring to mainstream alternative forms of finance that merge social impact with investing.
2. DESIGN PHILANTHROPY
Imagine you have two options that cost the same: buy a house or build one. Which one would you choose? When it comes to wealthy Millennials and philanthropy, current trends indicate they would rather be active architects than passive buyers.
With more billionaires in the United States than ever before, and with the rise in young millionaires looking to make a global impact—and leave a financial legacy—causes and charities seem poised to benefit from the wealth transfer. That is, if they can adapt to the Millennial donor. Millennial philanthropists will want to use their knowledge and networks to tackle intractable problems. This means they will want to get involved in the design phase of philanthropy, working with NGOs, causes, charities—and even governments—to develop innovative solutions for tough problems. As they seek new solutions to global challenges, they will increasingly tap into technology and social networks to source new ideas.
Millennials are more likely to buck traditional models of giving in favor of forging uncommon alliances with new partners and technologies that are uniquely positioned to help tackle the challenge at hand. Pew’s research shows that despite Millennials’ distrust of financial institutions, they believe government should be more involved. In an era of budget cuts, governments have already started courting the next generation of philanthropists. The causes, initiatives, and charities that draw Millennial philanthropists will be the ones that learn how to develop strategic partnerships that harness the private, non-profit, and government sectors for social good.
Organizations that embrace this new breed of philanthropists, getting them involved in solving challenges from the beginning, will thrive. A design philanthropy model, where charities get donors engaged from the idea phase, provides an alternative to the traditional donor and recipient models that, along with the baby boomers, are slowly retiring. The bottom line: creativity will trump dollars. The more creative organizations can get about engaging Millennials from the design phase, as opposed to approaching them later to only fund an initiative, the more likely they are to appeal to Millennial philanthropists.
3. HELICOPTER DONORS
Wealthy Millennials will usher in a new style of philanthropy that mirrors their upbringing. A generation raised by helicopter parents, those heavily-involved parents known for hovering over a child’s every move, Millennials are more likely to want to be involved in the decision-making process. As donors, they will want to be actively involved in the strategy and impact of the causes they support. Expect them to seek out causes they believe they alone can have a major impact on (think Bill Gates and the eradication of malaria). While Bill Gates is not a Millennial, the concept of using your wealth and influence to solve major global challenges has become a model for wealthy Millennials looking to develop their financial legacy—early.
Millennial philanthropists will be a different kind of donor. With pledges of a substantial portion of their wealth, will come increased involvement and expectations from Millennial donors. Impact they will pay for; charity, not so much. Millennials will want to see results and be able to demonstrate impact beyond prescribed surveys of outputs. Traditional ties to financial advisors and trust in institutions has eroded for Millennials. Despite this trend, Millennials still have confidence in an activist government and are likely to consider government an important partner. For charities and causes looking to attract Millennial donors, they will need to have strong partners that can help them demonstrate impact and bring an added layer of accountability to the table. Millennial philanthropists will gravitate to causes and organizations where they believe they alone can make a valuable contribution, beyond just giving a contribution.
PASSING THE BATON
While Millennials are slotted to be the primary beneficiaries of the wealth transfer, philanthropies will benefit from high-profile efforts to have billionaires pledge their fortunes to social good while they are still alive. The Giving Pledge may be the earliest sign of a growing trend towards planning for social impact—and a financial legacy—earlier in life.
As the wealth transfer slowly takes shape, philanthropies will need to adapt to a new kind of donor. They can start by engaging Millennials and getting them involved in their causes. This year’s annual “Giving USA” report takes note of an interesting new trend: a decline in Millennials volunteering their time. If the next generation does not have the hands-on experience of seeing and serving, they are less likely to give. Causes need to start early and work to engage Millennials, connecting them to volunteerism opportunities that will allow them to use their skills and see first-hand the impact of a cause’s mission.
In a world where fine lines are drawn between investment and charity, sits social finance. Wealthy Millennials are more likely than any previous generation to dismantle traditional investment portfolios and pivot their resources toward investments that are consistent with their values and interests. Expect impact investing, social impact bonds, equity crowdfunding, and other social finance tools, currently considered niche, to become customary for Millennials. The growing appetite for investments that also yield a positive social impact means that the future of finance is due for another shake up. And this time, its outcomes will rest in the hands of Millennials.
Remember Y2k, the super-hyped, albeit defunct, warning that the world’s digital infrastructure would stop working at the stroke of midnight? While the hype of Y2k has become a marker (albeit jokingly) of the moment of transition into the new millennia, not all changes in society are as clearly marked as the dawning of a new millennia. A financial baton is being passed on from the baby boomers, the largest generation in U.S. history, to the cautious, yet socially conscious digital natives of the Millennial generation. This may seem like Y2k hype now, but this subtle, yet measurable shift will slowly change the face of philanthropy and finance.
Daniella Foster is Co-founder and CEO of the Emergent Leaders Network and Director of Public-Private Partnerships at the State Department.
This article was originally published in the Diplomatic Courier's September/October 2014 print edition.
