What Is Philanthropy?

Philanthropy involves charitable giving to worthy causes on a large scale, but it is much more than just a charitable donation. Philanthropy is an effort an individual or organization undertakes based on an altruistic desire to improve human welfare, and wealthy individuals sometimes establish private foundations to facilitate their philanthropic efforts.

Nonprofits are organizations set up to support a variety of social causes, such as educational, health, scientific, public safety, and human rights. In the United States, organizations that qualify as nonprofits are exempt from federal tax liability under the Internal Revenue Code (IRC) 501(c).

Understanding Philanthropy

Philanthropy refers to charitable acts or other good works like volunteering your time or efforts that help others or contribute to the well-being of society overall. For some people, philanthropy means donations of money, often large sums, to support or create university buildings, research centers, or fund four-year college scholarships. For others, acts of philanthropy mean an annual donation to a local theater, food pantry, or public school.

There are many ways to make charitable contributions on a local to a global scale, including corporate philanthropy. There are also individual philanthropists. Philanthropy may be done for tax breaks or altruism, or a combination of the two things. Anyone can be a philanthropist if they give of their talent, time, money, or skills.

History of Philanthropy

Philanthropy dates back to Greek society. For instance, Plato instructed his nephew in his will to use the proceeds of the family farm to fund the academy that he founded in 347 B.C. The money helped students and faculty keep the academy running.

Around 150 years later, Pliny the Younger contributed one-third of the funds for a Roman school for young boys. He instructed the fathers of the students to come up with the rest. The intention was to keep young Romans educated in the city rather than abroad.

In 1630, John Winthrop of the Massachusetts Bay Colony preached to Puritan settlers that the rich should care for the poor, who could not help themselves. And in 1638, John Harvard laid the foundations for Harvard University after bequeathing half of his estate to found the school.

More modern and notable philanthropists include Mother Teresa and Norman D. Rockefeller. In the 21st century, philanthropy continues to be practiced in many forms by individuals like Warren Buffett, Melinda Gates, and Dolly Parton, as well as corporations.

Benefits of Philanthropy

There are many benefits to being a philanthropist. Experts conclude that charitable giving can improve one's emotional and even physical well-being, and philanthropists have the satisfaction of knowing they have contributed to the greater good. In fact, some studies show that philanthropists have less depression, higher self-esteem, lower blood pressure, and may even live longer than those who don't give.

The benefits of philanthropy are not limited to individuals. Corporations that support charitable giving receive a wealth of offerings from building a better public image, creating more vital brand awareness, and attracting new partners and talent who may be attracted to a company that contributes to charities.

In addition, employees who work for companies that give back to society are happier and contribute more to their jobs. And, because corporations are created to make money, a strong philanthropic streak often boosts sales and new customers.

Philanthropy and Taxes

While it is true that individuals benefit from charitable giving when tax time comes, some benefit more than others. The IRS allows most individuals to deduct around 60% of their adjusted gross income (AGI). 

There are very wealthy individuals who use charitable giving to shield themselves from large tax bills. But some say billionaires are dodging paying their fair share of taxes under the guise of charitable giving to the needy.

Statistics on Giving

Americans and U.S. organizations gave about $484.85 billion to national charities in 2021. That number increased 4% from the previous year's estimated total of $466.23 billion, according to Giving USA as reported by Lilly Family School of Philanthropy. Some of the wealthiest Americans gave as much as $15 billion during the year, which represented 5% of all giving by individuals.

Some of the highlights from Giving USA's annual report include:

• Roughly $326.87 billion in donations by individuals
• An estimated $90.88 billion by foundations and other organizations
• More than $46 billion through bequests, which are made through trusts and wills
• More than $28 billion in corporate donations

Religious organizations ($135.78 billion), education ($70.79), and human services ($65.33) received the most money. Donations to environmental and animal organizations (11%), foundations (9.3%), and health (7.7%) grew the most. These figures were not adjusted for inflation.

Although the number rose from 2020, experts at Giving USA say the total didn't keep up with inflation. These were some of the challenges faced by individuals, corporations, and nonprofits alike during and immediately after the COVID-19 pandemic.

Examples of Philanthropists

Many people in the United States give money to causes in which they believe. The following are just some of the examples of people and corporations that engage in philanthropic activities.

Andrew Carnegie

Perhaps the most famous example of philanthropy came from Andrew Carnegie, simply because of the scale of his giving. Carnegie's wealth helped build more than 2,500 libraries all over the world. He also endowed several universities and a charitable trust that still runs 100 years after Carnegie's death in 1919.

Estimates of his total charitable contributions exceed an estimated $350 million. Carnegie lived up to his credo that a man who dies rich dies disgraced, and the rest of society learned to follow his example.

The Ford Foundation

The Ford Foundation's legacy of giving is another example of how philanthropy works, The corporation was established by Edsel Ford, the son of Ford Motor Company founder Henry Ford. The foundation focuses on strengthening democracy, improving economic opportunity, and advancing education.

Some of the areas the organization covers include:

• Civic engagement and government
• Disability inclusion
• Gender, racial and ethnic justice
• Natural resources and climate change
  

Bill and Melinda Gates

Billionaire and Microsoft mogul Bill Gates and his ex-wife, Melinda, established the Bill & Melinda Gates Foundation to support global development and global health programs. The organization works globally and in the United States to research and combat disease and to fight poverty. According to the foundation's website, it has spent almost $54 billion on charitable giving since 2000.

Mother Teresa

You don't have to be a billionaire or give money away to be considered a philanthropist. In fact, there are notable individuals who aren't ultra-rich and are known for their philanthropic efforts. Mother Teresa is one of the most famous examples. The Catholic nun set up the Order of the Missionaries of Charity (now known simply as the Missionaries of Charity) in Kolkata, India, in 1950. The goal of the organization was to provide vulnerable communities with "material and spiritual welfare."

The Bottom Line

Many of the world's billionaires donate a good portion of their wealth to charitable causes. And it can be hard to live up to that reputation. Contrary to what you may think, you don't have to be among the ultra-rich to be a philanthropist. Donating some of your monthly income may feel like the only way you can do good in the world but there are other ways to make a difference in the world. Giving some of your free time to causes you believe in is also a great way to become a philanthropist.