Is Philanthropy A Sustainable Approach To Personal Finance?

Although philanthropy may not seem like a useful approach for personal financial planning at first glance, when it is sustainable, it will be better for society and everyone’s financial stability. Philanthropy comes from the combination of the Greek words “philia”, meaning love, and “anthropos”, meaning human, and means “love of humans”. 

The concept of philanthropy encompasses a widespread network of foundations, corporate donors, and donor individuals who are not only concerned with giving but are also interested in improving the quality of life of society for many reasons.

Although philanthropy in this sense refers to corporate philanthropy, it is also used today for financial aid provided by foundations and businesses to non-profit organizations. This form of giving is often referred to as regular philanthropy and giving.

Philanthropy has an important place in the context of social responsibility. The concept of social responsibility is aimed at satisfying the interests of customers and society in the long term to achieve the basic objectives of businesses.

The basis of this understanding is that economic activities are carried out in a way that does not harm the parties involved in the business. Experts consider corporate social responsibility; and evaluate it in four dimensions: economic, legal, ethical, and voluntary.

While philanthropy is considered within the volunteer dimension of corporate social responsibility, it is not considered in connection with profit or the ethical culture of the business. Recent studies show that organizations are formalizing their philanthropic activities and attempting to combine philanthropic goals with business strategies and practices.

According to a study conducted in the USA, a systematic approach to philanthropy; increases employee loyalty, improves relationships with customers, and provides a better business image.

How Can Philanthropy Align With Financial Goals And Values?

In the traditional approach, philanthropy is not aimed at the use of strategic goals and resources of businesses. In strategic philanthropy, philanthropy becomes the focal point of activities in the form of a long-term vision that includes the benefit of interest groups and the welfare of the business. 

This requires the support of top management, which includes a reward and incentive system that considers the interests and benefits of interest groups together. The transition from traditional philanthropy to strategic philanthropy led businesses to redefine their missions in the 1980s and 1990s. 

Downsizing, internationalization of competition, and investor demands have caused organizations to re-evaluate their business activities and outputs. Therefore, businesses have tended to use strategic philanthropy that addresses organizational and social needs together.

Under this approach, neither philanthropic nor business purposes have a dominant role.

What Are The Financial Benefits Of Charitable Giving And Impact Investing?

It is difficult to disentangle perceptions and realities when it comes to the performance of impact investing and charitable giving. Some impact investments are made with the understanding that the social or environmental impact justifies a lower or concessional return on investment.

These may include low-income housing funds, which provide investors with a steady stream of income at a lower market rate.

However, many impact fund managers reject this idea and insist that market-rate returns are what they aim to provide. Some in this second camp are hesitant to call themselves impact funds for fear the label will scare away potential LPs. They sometimes call themselves “finance-first” funds to ensure potential LPs understand their income-focused stance.

2020 Global Impact Investing Network (GIIN) research showed that two-thirds of impact investing organizations in the outcomes investing landscape are seeking market-rate returns, with the remainder willing to accept concessional-low-rate returns. 

Typically, research says, the desired rate of return depends on the type of investor. For example, according to the survey, 48% of individual participation-focused investors pursued market-rate returns, while 81% of PE-focused investors targeted market-rate returns.

While some may be completely opposed to the idea of investing for below-market returns, for example in the case of affordable housing funds, investors are often asked to accept concessional returns (at low interest) to preserve the affordability of the property. 

If landlords push for market-rate rent increases or make improvements to the property that allow them to charge much higher rents, the stock of affordable housing will decrease with these investments.

However, depending on the industry focus, impact funds can also be quite lucrative; Many climate-related investments in technology fall under the umbrella of sustainable impact and often deliver solid and competitive returns.

Can You Share Examples Of Individuals Who Incorporated Philanthropy Into Their Financial Plans?

Strategic philanthropy emerged in the 1980s as a management and marketing practice to promote social responsibility in organizations, especially in the United States. The first company to launch the application in question is AT&T.

The foundation, established within AT&T under the chairmanship of Reynold Levy, has become a leading organization in this field. Levy’s ideas connecting AT&T’s foundation activities with its business objectives and areas of interest changed his perspective on the relationship between organizational and social needs.

Coca-Cola has also used philanthropy as a strategic approach and as a means of fulfilling its commitment to society and its responsibility to partners.

Before the 1990s, decisions to support social causes tended to be made based on issues that reflected pressures arising from the idea that “one should do charity to look good.” Businesses traditionally fulfilled an obligation and donated based on their pre-tax earnings.

They did this simply by “making charity as easy as possible” through the practice of writing a check. Since the 1990s, this practice has transformed into corporate philanthropy with a strategic approach. 

With this new approach, businesses have begun to embrace the idea of “not just doing a little charity, but doing all we can to do the most good.” In addition to doing charity, the motivation to “make a profit” has made businesses even more enthusiastic in this regard.

Prefers social issues that support business goals; choosing topics linked to key products and key markets; Involving more than one department in the selection process in the implementation of programs,

How Can You Make Informed And Impactful Philanthropic Choices?

To make conscious and effective donation choices, it is very critical to research and determine personal values, interests, and organizations in advance, and transparent organizations should be preferred.

Philanthropy is a form of thought, behavior, and voluntary action that aims to improve the quality of life by creating social benefits. In a narrow sense, helping those in need and the poor are perceived as doing good. In this sense, it is identified with aid given directly and between individuals. 

In this context, it also includes financial aid made to non-profit organizations by individuals, foundations, and companies, and generally covers more organized, systematic, and strategic charitable activities. 

No matter how it is understood, philanthropy is a form of behavior and action specific to individuals and institutions that are designed to make sacrifices for the good of others. Islamic foundations, church charity groups, and organizations such as Plato’s Academy in Ancient Greece are among the oldest examples of philanthropic institutions. 

What Are The Tax Implications And Strategies For Charitable Giving In Personal Finance?

The significant incentives provided by the American tax system to donations and foundations indicate that philanthropy alone does not underlie the astronomical donations made by American billionaires to their charitable giving.

The discussions, which came to the fore again after Facebook founder Mark Zuckerberg announced that he would donate almost all of his fortune, also raised the question of why the world’s most charitable businessmen always come from America.

The various advantages offered to donors by the country’s tax laws reveal that it is not a coincidence that rich Americans are at the top of the list of top donors every year.

Donations made to charities approved by the US Internal Revenue Service (IRS) are both exempt from income tax and provide a tax deduction of nearly 40 percent. According to the rules of the IRS, the federal tax deduction that an American who donates a thousand dollars will receive can be up to $400.

See you in the next post,

Anil UZUN