As HBCUs nationwide celebrated commencement ceremonies in recent weeks, two institutions made headlines with extraordinary gifts from their most active philanthropic groups. Morgan State University and Howard University announced gifts from their respective 50th-anniversary classes totaling more than $1 million each.
These two gifts, along with record-setting giving from older alumni classes at institutions like Alabama A&M University, Texas Southern University, Benedict College and others are examples of a renewed spirit of giving to historically black colleges in recent years.
But these historic examples of support may be the beginning of the end of sizable philanthropy from older HBCU alumni. Financial trends projecting a growing wealth gap between African Americans and other racial groups, changing attitudes about work, and dramatic shifts in pension income for retired workers may change the resources older graduates have to give to HBCUs.
And HBCUs may have to start adjusting now to prepare for the future.
A 2018 study compiled by New York University economist Edward Wolff shows that wealth held by African Americans and Hispanics is largely generated by Social Security and pension income and that those numbers have grown in the percentage of wealth they comprise for minority households.
The standard definition of wealth (net worth) includes marketable assets such as housing and other real estate, bank deposits and money market accounts, securities, corporate stock and mutual funds, defined contribution (DC) pension plans, including IRAs and 401(k)s, and unincorporated businesses. What if we now include Social Security wealth and defined benefit (DB) pension wealth to obtain a broader measure of wealth? Augmented wealth is defined as the sum of conventional net worth, DB pension wealth, and Social Security wealth. DB pension wealth is defined as the present value of the discounted stream of future DB pension benefits and Social Security wealth in analogous fashion is the present value of the discounted stream of future Social Security pension benefits. When the definition of wealth is so expanded, the wealth gap markedly shrinks.
There was a profound alteration of the private pension system after 1989, with a dramatic rise in DC pensions and a corresponding decline in DB pensions. However, the take-up rate in DC coverage was much greater for whites than the two minorities, with the share of households with DC plans climbing from 26% in 1989 to 60% in 2016 among whites, from 16 to 34% among blacks, and from 13 to 31% among Hispanics. The percentage with DB pensions declined for all three groups. All in all, the proportion holding any pension wealth went up from 62 to 72% among whites, from 40 to 50% among blacks, and from 31 to 40% among Hispanics.
If projections about the federal Social Security program hold true, most young HBCU alumni between the ages of 25-35 will not have the same level of benefits currently held by recipients aged 62 and older. That could mean less wealth for retirement eligible individuals, graduates having to work longer to pay for living expenses and a shrinking donor base for HBCUs.
Considering the amount of HBCU graduates working in public sectors like education, social services and government where pension crises are reaching nearly unmanageable levels, the impact on donor activity may be soon and may be dramatic.
THE FUTURE OF WORK
Most college graduates are facing a future workforce which will not be driven by finding a job a staying in it for 30 years, but rather holding many jobs, changing careers or financing life as a ‘gig’ sub-contractor. This could project to workers having more responsibility for retirement saving without the benefit of an employer match, and more volatile stock markets providing lower returns on investment savings accounts. Employers and employees are looking for cheaper and more flexible labor opportunities. This effects wages, which effects savings, and ultimately, impacts philanthropy at all levels of giving.
WHAT IS THE FINANCIAL FUTURE FOR HBCUS?
Many HBCUs are doing a good job of cultivating donor culture during the undergraduate experience, but students and young alumni will have to be more educated on the prospect of income over the next 20 years. They should be made aware that good earnings may not mean solid retirement, and that this priority may impact their capacity and willingness to give back to HBCUs.
Times may be stable for black colleges with increasing revenues in gifts and private grants, but there is a certain financial future coming and all black colleges must prepare their graduates for what’s ahead, in order to stay top of mind as a giving destination.