A ccording to research by the Johnson Center for Philanthropy, the Gen X and Gen Y/Millennial generations stand to inherit some $41 trillion during the first half of the 21st century.
Many of these children and grandchildren have been the beneficiaries of increased illumination of the human condition and the diverse communities of the world. Through extensive media coverage, the Internet, Twitter, Facebook and other instantaneous worldwide communication, our children and grandchildren have been eyewitness to Third World repression, poverty, climate change and inequality.
Responsible upbringing coupled with this global "transparency" has instilled in some children the importance of giving back to the community and using wealth to help address or resolve some of the world's problems. Many future inheritors take their roles as stewards of their families' philanthropic legacy very seriously.
However, while Gen X and Gen Y/Millennial donors have significant capacity for giving, now and in the future, their contributions will be different from the charitable giving of their forefathers. These "NextGen donors" are interested in funding new innovations for a healthier world, making contributions to organizations focused on land conservation or restoration, and many of them will evolve into social entrepreneurs themselves. These donors are also seeking to support meaningful organizations not just by donating money, but, with their own professional and personal talents, working alongside these groups to help advance solutions.
Once they donate, these NextGen donors are looking for accountability on the part of the charity. They want to be assured that the funds they give are working toward a worthwhile solution. As technology continues to advance, more and more charities will be required to show results for the funds they are given.
In addition to outright giving to worldwide charities and volunteering time for their favorite cause, the NextGen donors are and will be investing their own money in a way that makes a difference. Instead of holding newly inherited wealth in traditional stock and bond portfolios representing the best Wall Street has to offer, these investors are fueling an entirely new way of investing that speaks to the heart of the Gen X and Gen Y/Millennial children.
Using "impact investing," these children direct their money managers to invest in a way that increases the flow of capital into investments that advance social or environmental change. This generation's money will be invested in organizations that generate measurable social changes and provide financial returns.
For instance, with impact investing, funds are deposited with a U.S. intermediary who then loans funds to financial institutions that serve the working poor in emerging countries. That financial institution then makes a micro-loan to a vegetable farmer, helping him expand his business and employ more workers. Many families benefit from the loan and, when the farmer pays back the loan with interest, the investor makes money.
Liza Horvath has over 30 years' experience in the estate planning and trust fields and is the president of Monterey Trust Management, a financial and trust management company. This is not intended to be legal or tax advice. Questions? Email email@example.com or call 646-5262.