I don’t need to tell you that inflation has been a menace over the last five years. Comparing the Consumer Price Index for 2019—the year before the pandemic—to current estimates, prices have risen for Americans by a whopping 23%. And unless your hourly wage or salary has risen by the same 23%, you’ve lost financial ground.
Things are even worse here in Southwest Florida, where we have outpaced the national average. Housing costs have grown much faster in Florida than in most of the country due to surging demand, limited supply due to housing regulations and rising insurance costs.
“Shelter” is the index’s biggest category because that’s where most of us spend the majority of our monthly budget. Groceries, gas and rent consume the largest part of household budgets, and those items have seen some of the biggest cost increases in the last five years.
That leaves less money in the pocketbook, which has serious consequences on philanthropy. For starters, when people reduce spending to make ends meet, many consider cutting charitable donations. Giving generously is important, but making rent has more immediate consequences than making a donation to a worthy cause.
According to a recent report from Giving USA, individuals’ charitable donations make up about 67% of all contributions. And individual philanthropy tends to be even more important at the local level. Bill Gates may be eradicating polio somewhere, but he’s likely not helping your local soup kitchen.
According to the same report, and despite cutbacks by some individuals, charitable giving nevertheless rose a slight 1.9% in 2023. But, after adjusting for 2023’s 4.1% inflation rate, the real value of those donations actually fell by 2.1%. And though inflation may have cooled somewhat, it doesn’t mean those prices are ever going back down. It just means the hikes are a little less hefty each year, with an estimated inflation rate of 3.2% in 2024.
Inflation makes people poorer, so they donate fewer dollars. Inflation also erodes the value of dollars they do contribute. All of this makes budgeting a guessing game for nonprofits, which also struggle to retain good workers facing the same cost-of-living increases as everyone else.
What’s the solution? Well, ideally, we’d live in a world with a steady, predictable annual inflation rate. It’s hard to budget for next year if you don’t know what stuff will cost.
Any economist will tell you that U.S. inflation didn’t get really bad until we cut loose the dollar from convertibility to any precious metal in 1971. But we’re likely not going back to the gold standard. A second-best approach to taming inflation would be for the Fed to make inflation its primary focus rather than to try to manage inflation and unemployment simultaneously. As we have seen, the “dual mandate” seems to fall short in practice.
But if the Fed can’t keep inflation low and slow, then charities need to do what the rest of us do as prices climb: Be careful with a buck and ask for a raise. In the case of local charities, “asking for a raise” may mean writing an annual appeal making it clear that last year’s $100 gift needs to increase to have the same budgetary effect this year. Inflation isn’t the organization’s fault, but that’s its reality.
It may be a tough sell to donors already feeling pinched by inflation, but it’s a truth that needs sharing.
Victor V. Claar is an associate professor of economics in the Lutgert College of Business at Florida Gulf Coast University.