They want “to give their money in a way that has greater impact to issues that they’re worried about in the world,” he says. Another difference is many younger givers “are more likely to see business as a tool that can help improve the world,” he says, “and not have such a stark division in their mind” between philanthropy and business. Millennials may look to invest some of their money in for-profit entities that can impact issues they care about, he says—such as renewable energy companies and for-profit social enterprises that provide affordable housing.
It is possible millennials’ interest in impact investing could cut into their philanthropic giving, says Callahan. “On the other hand, it’s not necessarily a zero-sum game,” he says, because investors making an impact through for-profit social investments may have otherwise parked those dollars in traditional investment vehicles in the capital markets.
Finding That Sweet Spot
Millennials “are probably on pace to become the most philanthropic generation,” says Kim Laughton, president of public charity Schwab Charitable. “They’re already very engaged.”
But while many millennials participate in workplace fund-raisers and they’re the generation most involved in crowdfunding campaigns (according to the Blackbaud study), they often lack a long-term, tax-efficient strategy for charitable giving. Laughton thinks donor-advised funds could be a good option for millennials, who tend to be tech-savvy and very oriented toward value and low costs. These funds allow account owners to set aside cash and non-cash assets and invest them, for tax-free growth, until they grant to specific charities.
“Donor-advised funds in general sort of meet that sweet spot of low cost, simple, easy to operate,” she says. Account owners can use mobile phones to move contributions from an investment account to a charitable account and make grants. Schwab Charitable, a leading donor-advised fund sponsor, has a $5,000 minimum initial investment.
Beyond cash, givers can also put things like securities into donor-advised funds—including publicly traded stock, IPO stock and restricted stock, says Laughton—options that are popular among millennial account owners. Such donations help donors avoid the capital gains taxes they’d incur if they sold the securities. Cryptocurrency contributions were popular a year and a half ago, and she expects to see that again if the currencies continue to rebound.
In fiscal 2018, Schwab Charitable’s millennial account owners made average grants of $3,000 and granted about six times—for a total average annual grant of $18,000. Although millennials represent a small share of account owners, says Laughton, “I’m seeing the power of this generation really drive how we think about things.”
Schwab Charitable had millennials in mind when it added its socially responsible investing pool managed by Pax World. Its large-cap equity pool is run by Parnassus Investments, a socially responsible asset manager.
Advisors who wish to help millennials meet their philanthropic goals should be “recognizing that this move towards impact investing is real,” says Laughton. “If you’re not talking to them, the other advisors will be.”