Research Brief: Tapping Philanthropists With Two Minds

WHAT DID THE STUDY LOOK AT?

Classical economic theory holds that a dollar spent on food should be valued just as much as a dollar spent on clothes. But people often value their money differently depending on where it’s spent. One explanation is that there are mental budgets — a cognitive form of book-keeping — that guide us when we consider purchases. If we use up our monthly mental budget for clothing, for example, we might be loath to buy a shirt yet perfectly comfortable to dine out. 

Previous research has shown that donors consider philanthropic and nonphilanthropic factors depending on their motivation for making a gift. This study digs deeper, exploring whether or not philanthropists have a mental charity budget and, if so, whether or not donations can be “expensed” to multiple mental budgets.

HOW WAS THE STUDY DESIGNED?

The researchers conducted hour-long, semi-structured interviews with 42 philanthropists in Canada and the U.S.

WHAT DID THE STUDY FIND?

• Many philanthropists do have a mental budget for charity, and a common anchor was about 10 percent of their disposable income.
• Just as a meal at a restaurant can be cognitively “expensed” as either food or entertainment, “donors may access other salient budgets to make a gift when the charitable budget has been exhausted.”
• Numerous donors spoke about the importance of giving even when other budgets were strained, suggesting that was a priority for them; many also reflected a relatively sophisticated and strategic perspective of their philanthropic activities.   
• The more, and the more intrinsic, the motives donors had, the more likely they seemed to be to expand outside of their original charitable budget. This finding is consistent with the authors’ analysis of data from the Canadian Survey of Giving, Volunteering and Participating.
• The pool of resources that nonprofits can access may be increased when multiple budgets are targeted. The researchers offer an example of a theatre patron who is given show tickets as a result of his donation; as a result, the patron justifies a larger donation because it can come from both entertainment and charity mental budgets.
• Knowing more about which mental budgets to target donors may help increase both the size and number of donations. For example, nonprofit organizations could target non-charitable budgets for new donors by offering rewards and, as the donors become more involved with the organization, begin appealing to altruistic motives to access the charitable mental budget as well.

WHAT DO I NEED TO KNOW?

While more research is needed, this study hints that there are untapped strategies for appealing to multiple mental budgets, which is welcome news in the highly competitive world of nonprofits. In order to attract gifts from donors who have exhausted their charitable budgets, nonprofit organizations may consider making the gift solicitation a more ambiguous expense; a giving opportunity that could be allocated against different mental budgets is more likely to be successful. Nonprofits can also consider launching more diverse and non-philanthropic appeals, such as offering social opportunities or gifts, in order to tap into multiple mental budgets. 

The downside, however, is soliciting a donation that appeals to the wrong mental budget. As the researchers note, “A donor who is motivated by tangible rewards is not likely to respond to a gift request that has no self-benefit. Alternatively, donors who pursue a more traditional form of philanthropy may be upset by what they perceive as misallocated resources when an organization offers some form of tangible or economic benefit back to the donor.”

Title: The Role of Mental Budgeting in Philanthropic Decision-Making

Authors: Monica C. LaBarge (Queen’s University School of Business) and Jeffrey L. Stinson (Central Washington University)

Published: Nonprofit and Voluntary Sector Quarterly (forthcoming)

— Ben Williamson