Did you know there are over 1.5 million active 501(c)(3) charitable organizations in the U.S.? This abundance of worthy causes can be rewarding and challenging to navigate for both first-time donors and long-time philanthropists.
To create lasting impact that aligns with your personal values and motivations, it is helpful to understand the nuances of two key terms: charity and philanthropy.
What is Charity?
Charity is used to describe giving that directly fulfills urgent and basic needs, such as providing life-saving emergency food to victims of a natural disaster. It is also used when nonprofits seek time-sensitive donations, such as an end-of-year fundraiser. Charitable donations — critical for nonprofits and the people they serve — are often one-time gifts from supporters compelled to help in a time of need.
Additionally, charity is used as a synonym for a nonprofit organization of any size — from a community volunteer organization with an operating budget of a few thousand dollars to a multi-billion-dollar global organization with tens of thousands of staff. The relevant Internal Revenue Service classifications for tax-exempt nonprofit organizations are:
- 501(c)(3): organizations created for charitable, religious, educational, or scientific purposes that directly benefit a target population. These organizations have limitations on lobbying, advocacy, or political activity and cannot endorse specific candidates. Donations to 501(c)(3) organizations are tax-deductible and can be delivered by Foundations and Donor-Advised Funds.
- 501(c)(4): organizations that promote social welfare causes by advocacy and political lobbying. These organizations can endorse specific candidates. Donations to 501(c)(4) organizations are not tax-deductible and must be delivered by personal funds.
In summary, charity typically refers to both donations and organizations that provide short-term, critical resources that serve the broad public interest.
What is Philanthropy?
Philanthropy means “love of humankind,” and similar to charity, refers to private contributions on behalf of the public good. However, effective philanthropic initiatives are driven by vision and values for a strategic purpose. This requires longer-term planning to build a holistic philanthropic grantmaking portfolio that is structured to align with an overarching strategy. These grants generally fund 501(c)(3) organizations, and increasingly, invest in political advocacy to support candidates and 501(c)(4) organizations that influence policies at the systemic level.
Well-managed philanthropic portfolios balance risk — like a financial portfolio of stocks, mutual funds, and assets — by investing in trusted programs or filling critical gaps in the ecosystem while sometimes taking calculated, bold bets on new approaches that may be transformative. The impact is tracked over time to ensure that resources are being properly allocated to achieve one’s philanthropic goals.
Effective philanthropy maximizes impact by prioritizing:
- Strategy
Philanthropy is driven by strategy. The first step to develop a philanthropic strategy is to identify and clarify the vision, mission, and core values that will guide a philanthropist for years to come. Research and analysis is then conducted to navigate the plethora of worthy issues, organizations, funding gaps, and community needs that align with the strategy. This comprehensive phase leads to the creation of a grantmaking portfolio — a framework that guides thoughtful recommendations to improve philanthropic outcomes and catalyze change.
- Scale
The size of philanthropic grants varies widely, but they are targeted to create a specific and long-lasting impact to meet a community need. Grants often fund an individual program, but they can also bolster the overall stability and viability of a nonprofit, and therefore its mission, by providing general operating support. Philanthropic investments can also include non-monetary contributions that scale impact, such as networking assistance, pro bono advising, or capacity building — all key components of a forward-thinking trust-based philanthropy approach.
- Systems
A holistic philanthropy portfolio should be structured to alleviate short-term symptoms and address the root causes of an issue. This is the bedrock of addressing community needs and creating sustainable, transformative change. Philanthropy can also facilitate successful cross-sector partnerships — bringing together philanthropists, community partners, and the public sector — to design new initiatives. One high-impact example is the City Fields project, which brought together philanthropist brothers Bob, Bill, and John Fisher in a $52M public-private partnership with the City of San Francisco to revitalize 21 public playing fields that had fallen into disrepair.
Why do the Differences Between Charity and Philanthropy Matter?
While the intention of charity and philanthropy is the same — creating a better world —there are important distinctions between the two terms. Charity generally refers to giving that provides short-term and critical needs to a target population, while philanthropy is strategic, long-term, and involves ongoing partnerships with community and nonprofit leaders.
Both charity and philanthropy play an important role in serving the public good. In a society with a vibrant giving culture, the lines between these terms blur as organizations are funded by private and public sources to respond to short-term needs and build long-term systemic solutions. Actively participating in this collaborative future is how you can help create a more equitable and uplifting world for all.
