Lately, some of our country’s largest endowments have been frequently mentioned in the daily news cycles. For example, Harvard has an endowment worth more than $50 billion. Some of our nation’s wealthiest and most generous philanthropists have well-established endowments that provide funding to an assortment of causes ranging from clean water to cancer research. But for those of us who are not Harvard or Bill Gates, what purposes can endowments really serve? And what, exactly, are endowments? How do they work?

People make charitable donations in many ways, and for a variety of reasons. In the case of endowments, donors want to create an enduring legacy for a specific cause, or to make sure an organization the donor has supported during their lifetime will have financial stability for generations to come.

Endowments, much like retirement accounts, are not intended to provide immediate funding to the beneficiary – but, they do provide a tool a donor can use to ensure long-term funding for a cause important to them, and allows the donor to set up very specific guidelines of how the money can be used in perpetuity, well beyond the donor’s lifetime. Endowments are structured so the donor’s initial gift is invested, and then each year, as the investment grows, the endowment uses a small percentage of that investment to pay out grants to the cause specified by the donor, while preserving the original capital. As the original investment continues to grow, the amount that can be granted each year also grows. As an example, assuming an investment return of 8% and spending only 5%:

• Year 1: Donor invests $100,000
• Year 25: Endowment has provided grants of roughly $186,000, while your initial investment has grown to $190,000.
• Year 50: Endowment has provided grants of roughly $541,000, while your initial investment has grown to $360,000.

One way to establish an endowment is through a Community Foundation. Community Foundations provide an efficient and flexible way for donors to establish endowments, whether the donor wants to contribute $10,000 or $10 million.

Endowments are not “one size fits all” and are not appropriate for every situation, but there are many success stories that illustrate their benefit. Locally, the Community Foundation of North Central Florida has more than 70 local endowments. One example of where a Community Foundation endowment could be particularly useful is to help a small organization create a stable funding stream for years to come, even amid changes in funding landscapes. One of the newest endowments at the Community Foundation of North Central Florida is one that serves exactly that purpose for the Child Center for Early Learning.

The Child Center is an early learning center for low-income children ages 0 to 5 located in the historically under-resourced SWAG neighborhood. Its mission is to ensure children from that community have an opportunity to access high quality early childhood education and care so they can be prepared for kindergarten and beyond. The Child Center is led by an all-volunteer board of directors, who contract with partnering organizations to build a network of support for our families. The Child Center receives funding from various local, state, federal, and private sources, but in the last year, the Child Center’s board recognized those funding streams were part of an increasingly unpredictable government landscape. Even funding like federal Head Start which has been around for decades, was no longer predictable. The Child Center feared that relying on that type of funding as a main source of income would put the stability of their center and their families in jeopardy.

The Child Center worked with the Community Foundation to set up an endowment fund, where donors could contribute to the fund to ensure the Child Center is not only able to meet the needs of its children and families today, but for generations to come. The Child Center is well on its way to its goal and can rest easier knowing they have created a system whereby many generations of children will be able to have the same quality experience as their current students.

Dorothy Thomas is the Board Secretary of the Community Foundation of North Central Florida

Editor’s note: This is the latest in a series of philanthropy columns sponsored by Community Foundation of North Central Florida.