betterment charitable giving

To Michael Thatcher, charitable giving isn’t just an act of goodwill; it’s how we, as humans, can change the world for the better. This is precisely the kind of perspective we, at Betterment, were looking for when we reached out to Michael to get his opinion our new charitable giving service.

We already knew that many Betterment customers were passionate about donating securities—that’s why we built our service—but what we wanted to understand better was how Betterment could best serve charities too.

We wanted to understand what challenges charities face, what motivates donors today, and how charities see the future of their fundraising efforts. That’s why we turned to the organization Michael leads, Charity Navigator, one of the nation’s leading platforms for helping donors make smart choices about their charitable contributions.

As a foremost expert in the space, Michael graciously agreed to review Betterment’s approach to charitable giving. In our conversation, a theme emerged in the insights he offered: While Betterment’s new approach to charitable giving may not create radical, immediate change, its aspiration to make securities donations easier could create a ripple effect for the larger world of charitable giving.

Q&A with Michael Thatcher, CEO of Charity Navigator

“…Generosity is inherently human, and even if you took away the tax incentives, people would still give. But if the tax incentives are there—and more readily available for everyone—[charitable] giving certainly has the potential of increasing.”

When you speak with Michael Thatcher, the first thing you notice is how keyed in he is to the world of charitable giving. Michael’s mind is full of the latest stats and figures; he knows about recent events in far-off places and how those events might affect donations in America. And without a doubt, he understands what makes donors tick.

Charity Navigator, the organization Michael runs, helps donors make smarter choices with their charitable donations by providing information on charities, their accountability, transparency, and finances. So in many respects, talking with Michael is not unlike talking to a Betterment employee: He loves helping people use their money in ways that maximize its impact.

Charities today face stiff competition in attracting donors.

Our first questions for Michael were these: What are the major challenges that charities face in attracting donors? What makes individual charitable giving so important?

According to Michael, the defining issue in charitable fundraising today is connecting to donors, and helping them make giving as easy as possible.

“Everybody’s competing for donors,” Michael said. “There’s enormous growth in the number of charities. In one category alone—military veteran charities—there are at least 50,000 separate organizations to give to.” While having many charities is one measure of Americans’ generosity, it also means that every charity faces tough competition for its base of donors.

One of the most effective ways charities can increase donations is by reducing the friction that sometimes keeps potential donors from giving.

“The success that donor advised funds have seen shows that friction plays an important role in giving,” said Michael, referring to donation vehicles that encourage giving by allowing donors to claim immediate tax benefits from contributions but distribute the money to organizations over a longer period of time. “Every organization, Charity Navigator included, is looking to decrease the friction for how and why people give… Everybody wants to streamline the process, whether through online giving, credit cards, or any other way.”

But what also ends up happening is that charities want to have the broadest possible funnel for receiving funds, and often they have to devote significant resources to acquiring more donations.

“What’s really nice about Betterment’s [charitable giving] solution is that it facilitates a speedier transaction to the charity themselves,” said Michael.

In a space where donor fatigue is a challenge, making giving easier for the customer is important for any charity.

Could more donors giving appreciated stock increase overall giving?

We asked Michael if there’s a difference between the mindset of small donors (who might not know about tax-advantaged giving) and the mindset of wealthier donors. If wealthier donors have more tax incentives, are they more likely to donate more to charity?

Michael’s response was deeply thoughtful. “I do not think generosity depends on the size of your wealth,” he said. “But I think once you reach a certain wealth threshold, you become a much more interesting target for giving. And you also have access to much more information. Often, we see that wealthier donors are much more systematic in their giving, and that they start to develop a giving philosophy, such as: ‘I believe in education and the environment’ and I have a philosophy to give X amount each year to these causes.”

By enabling smaller and medium-sized donors to utilize the tax savings and information that larger donors receive, Betterment’s charitable giving service could help smaller donors plan their giving to be more impactful. That’s one issue Charity Navigator cares deeply about: Helping people get more information to enable stronger giving habits. As Michael describes it, in both their respective missions, Betterment and Charity Navigator seek to help more consumers access the advice, information, and tools that enable people to become better investors and donors.

Michael told us, “I don’t think many people think about [tax advantages] that much right now. If, as a donor, I can give stock and dodge capital gains, I would feel good about that. It might encourage me to give more. But most people don’t know about it.”

“I do think that generosity is inherently human, and even if you took away the tax incentives, people would still give. But if the tax incentives are there—and more readily available for everyone—[charitable] giving certainly has the potential of increasing.”

Charitable giving of securities could be a game-changer for charities.

What was most exciting to hear from Michael were his thoughts on what the future could hold as companies like Betterment enable more people to give in smart, tax-efficient ways.

“In the world of charity, we’d all love to reduce our fees. We’d all like to reduce the cost of raising capital,” said Michael. Because Betterment’s partnership with charities involves opening an account with Betterment with no fee (as long as the charity withdraws money before its account reaches $1 million in assets on the platform), giving shares through Betterment ends up being less expensive for the charity.

In addition, Michael saw exciting possibilities for the shares charities receive. “In our case, as an organization, when we receive stock, we immediately sell it and put it to use. I’ve never questioned that.” In the future, some charities might want to keep funds invested, helping to grow value over time, which could enable more sustainable funding streams.

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As Betterment rolls out our new charitable giving service, we appreciate Michael’s views and perspective on what a feature like our own could mean for the future of charitable organizations. Listen to more of Michael’s perspective on the latest episode of Better Off to learn more about Charity Navigator and the work Michael’s team does every day to improve charitable giving nationwide.