A Billion Here, a Billion There …

We’re talking in this blog about putting assets to work to make an impact on the world.

A million dollars is not enough. Let’s talk about twenty-five or fifty billion.3736209363_73e36f1fce_q

My friend Dan, who has an annoying habit of cutting to the heart of the matter, asked me, “How much money is in endowments? What kind of difference would it make if half of that was put to work fulfilling missions the way you suggest?”

So I did a little research. Most of the numbers I’ll cite in this blog today and in the future, unless I say otherwise, come from Giving USA and the National Center for Charitable Statistics, which may have the best single page of data right here.

It’s kind of difficult to tease out some of these numbers because of definition of terms, but by and large the numbers I’ve found all support one another.

There are 1.5 million non-profits in the United States, not counting almost 320,000 church congregations, which, thanks to the First Amendment, don’t have to file financial reports with the IRS. The congregations receive almost one-third of the $330 billion in donations made by American individuals and organizations each year, and that is almost their only source of revenue in most cases. But not all non-profits are charities — that total includes entities like lobbying organizations and country clubs that don’t generate wealth for their share-holders, but also can’t give you a tax-deduction for your dues payment.

All told, about two-thirds of these 1.5 million non-profits are registered public charities and only 286,000 of these are large enough (annual revenues of more than $50,000) to have to file. The $1.6 trillion that these charities spend each year represents about 10% of the $16 trillion US economy. That’s almost half of what the federal government spends each year on everything from national defense to social security. So it’s real money.

These 286,000 charities also have almost $3 trillion in assets. Some of that is property, but most of it is investments, endowment or otherwise.

Philanthropic foundations have a trillion dollars in assets. They give away 5% of that a year to other charities — $50 billion a year. Higher education institutions have almost a trillion; and everything else (primarily hospitals) have the third trillion. The $100 billion in income that that last $2 trillion produces accrues back to the institutions that own the assets, but still gets spent on charitable missions next year.

(Interesting side question: is there any relationship between the fact that colleges and hospitals have almost a trillion dollars in endowments each, and that college degrees and health care are the two things in America that are growing fastest in cost?)

But Dan’s question was what if HALF of the endowments in America were put to work the way I describe?

Well, if they liquidated half of their assets and spent them on mission immediately, that would be an extra $1.5 trillion going to doing good in the world. It could double the current annual impact of the charitable sector next year.

But I’m not advocating spending all of the charitable sector’s assets. I’m just suggesting that there’s a better way to use it than keeping it forever and only spending the five cents on the dollar that prudent strategy dictates.  My pet idea is the self-liquidating generational annuity, which essentially generates a return of 10% of the original principal for about twenty years.  I wrote about that here.  Next I’ll get around to answering Dan’s question, here.

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About J. Ronald Newlin

Non-profit consultant, museum developer, historian, Episcopalian, blues/punk bassist
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