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Inflation and Philanthropy

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When you work in the social impact sphere, you learn that many of the global issues we face impact the poor disproportionately. Whether you’re tackling climate change, pandemics, access to healthcare and basic services, war, food insecurity or lack of education, the poor incur the bulk of the costs…and then some.

Most economists agree that inflation impacts lower and mid-income households more severely than high ones. Or, to put it another way, poorer people effectively experience higher inflation rates than wealthy people do. (Some even argue that inflation makes the wealthy richer). Differences between composition of income, access to financial assets and ability to move between goods and services all play a role in creating this dynamic.

What’s less discussed is how inflation is also extremely harmful to the philanthropies and human service organizations that exist to serve them.

Unlike corporations who can protect their margins to some degree through price increases and reallocating capital, philanthropies that rely on fundraising don’t have such tools at their disposal. Inflation erodes their funds on both a nominal and real level, by reducing the volume and size of their funds as well as the effectiveness of each dollar deployed to their programs.

To make matters worse, the need for these services has grown dramatically. According to a 2021 survey of over 3,000 Massachusetts adults conducted by the Greater Boston Food Bank, pantry usage among adults with food insecurity increased from 1 in 3 in 2020 to 1 in 2 in 2021. When asked about the reasons for the increase, 54% of respondents cited the increased cost of groceries, 42% cited a decrease in income and 20% cited an increase of housing costs.

My colleague Lori Collins, SVP of One and All reinforces this point, “Food banks and shelters have real costs associated with inflation, and higher costs of food and housing reduces the number of people served if additional revenues aren’t acquired.” Consequently, in a time where circumstances are the most precarious for low-income people, the support networks and organizations designed to assist them are least capable of doing so.

So how do we solve this problem?

The answer of course, is empathy. Empathy is the most effective way to overcome the instinct for self-preservation that comes with uncertainty. The ability to share in the experiences of others and demonstrate that knowledge and understanding in an authentic way is what creates lasting trust and value. As an advisor to purpose driven organizations, I’ve learned that the best consultants have this skill and leverage it as a competitive advantage.

Make empathy more than a soft skill. Make it part of the company culture. Practice listening. Train your leaders on the importance of storytelling, perspective shifting and imagining what the infinite experiences of their consumers. Call it customer centricity, design thinking or intelligent branding, empathy, so long as it’s authentic is what connects people and makes them care.

Ultimately, inflation is as much a psychological phenomenon as it is an economic one and thus it requires behavioral solutions as well as scientific ones. Economists recognize that inflation is driven by our collective expectations about the future: forecasts of supply, demand, wages, interest rates, policies, etc. It seems reasonable to believe that these expectations are at least partly emotional, and therefore that inflation is a manifestation of our collective anxiety.

Reference: https://www.gbfb.org/what-we-do/data-research/#2022survey