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).

Key Takeaways

  • Philanthropy refers to charitable acts or other good works that help others or society as a whole.
  • Philanthropy can include donating money to a worthy cause or volunteering time, effort, or other forms of altruism.
  • Increased transparency is a serious matter for many nonprofits, and how funds are obtained and used should be carefully documented. Technology, including social media, has also shaped how many individuals give to others.
  • Andrew Carnegie is one of America's most famous philanthropists, noted for the large scale of his charitable contributions, which included building more than 2,500 libraries worldwide.
  • In modern times, philanthropy is often undertaken by those seeking tax breaks, in addition to feeling good and helping others.

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 from a local to a global scale, and there is corporate philanthropy, and there are 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. The famous philosopher Plato in 347 B.C., for example, in his will, instructed his nephew to use the proceeds of the family farm to fund the academy that Plato founded. 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.

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

Technology, including social media, has also shaped how many individuals give to others.

Example of Philanthropy

Many people in the United States give money to causes in which they believe. 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.

Another example is the Ford Foundation, 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.

Likewise, 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.

Today, the Charitable Contributions Deduction allows American taxpayers who make substantial charitable gifts to take generous tax deductions for the year in which their donations were made. Instructions for this tax deduction can be found on Schedule A on the IRS website.

Benefits of Philanthropy

There are many benefits to being a philanthropist. Experts have found 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.

Some studies have shown 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 at 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). 

However, some very wealthy individuals 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 $449.64 billion to charities in 2019, which represented one of the highest years on record for charitable donations. The amount was an increase of 4.2% over the previous year. Giving by individuals in 2019 was an estimated $309.66 billion, up 4.7% over 2018. Giving by foundations was an estimated $75.69 billion, an increase of 2.5%, while giving by bequest came in at $43.21 billion, which represented a flat growth rate of 0.2%. Corporate giving was $21.09 billion, an increase of 13.4%.

As much as 28.5% of charitable donations went to religious organizations. Most of the donations to religious groups went to local places of worship, and around 14% went to educational groups. According to reports, human services groups came in third, which reaped 12.5% worth of windfalls in that year, while grantmaking foundations received 12%, and 9% is the amount given to health organizations.

What Is the Difference Between Charity and Philanthropy?

While some use the words charity and philanthropy interchangeably, philanthropy often casts a broader net of giving. Its role is to help society or groups in the community flourish over a long-term period. Charity is usually based on individual giving and helping in a short-term way, like donating coats to the homeless in winter, helping out or contributing goods to a local food pantry, or sending money to a scholarship fund. These are all acts of charity but may not be considered philanthropic efforts like building a school or a library or donating millions to a scholarship fund.

Which Philanthropist Has Donated the Most Money?

According to an annual report in Forbes magazine, Warren Buffet has donated the most money, $48.2 billion, over his 91 years, as of 2020.

How Can I Become a Philanthropist?

Anyone can become a philanthropist, even if they are now wealthy individuals. You can donate your time, efforts, and cash to a specific cause, and over time, you may become known as a philanthropist.