Word of the Day

Commodity

Even if you don't think you do, you already know plenty about commodities. Want us to prove it? No problem.

What makes oil produced in Saudi Arabia different from oil exported from Nigeria? It's the same thing that makes the corn you ate at last summer¿s barbecue different from the corn used to produce ethanol. Stumped? Well, don't feel bad, it's a trick question. The answer? Absolutely nothing. Corn is corn no matter where it comes from -- just as wheat is wheat and natural gas is -- right! -- natural gas. (Though the quality may differ, the make-up is uniform.)

So, in less elaborate terms, corn and oil (and all other commodities) are homogenous goods that can be processed, resold and more often than not, used as an input to the production of other goods or services. These goods are traded on a commodity exchange, thus setting the price-per-barrel (or other metric unit) used to value them.

Now pay attention, here's a question that indeed does have an answer: What is the difference between a commodity and a stock? While a stock can tank and become worthless, a commodity cannot have its value be wiped to zero. One other difference: Most commodities are traded in futures, meaning traders buy and sell where they think the price of a product will be at a certain point in the future. Stocks trade based on the value of the underlying company at that point in time.

Home / Personal Finance / On Topic / Education

Tuesday, September 23, 2008

How Colleges Cope With a Decrease in Donations

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Kathryn Vasel

FOXBusiness

As financial turmoil roils the markets and the credit crunch drags on, consumers are tightening their purse strings and watching every penny. For colleges and universities that count on donations to fund projections and fill out endowments, a suspension in cash flow could spell disaster.

Higher education institutions admit that, while they are experiencing a slowdown, they aren’t feeling a major pinch quite yet.

According to a report from the Council for Aid to Education, private donations to colleges jumped a record-setting 6.3% to $29.5 billion in 2007. The survey tracked donations for 2006-2007 fiscal year, before the massive economic slowdown, so next year’s survey could bring an abrupt end to peoples’ charitable mindset.

According to Frederic Fransen, executive director for the Center for Excellence in Higher Education, economic conditions affect some types of donors more than others.

“Routine alumni gifts tend to be thought of as dues, and are relatively separate from general economic conditions,” he said.

Donations from business can be influenced significantly by economic downturns. “Business gifts are effectively part of marketing budgets, and are affected when that budget, and are affected when that budget changes due to belt-tightening,” said Fransen.

For most schools, the slowdown during tough times comes from the middle and lower-level donors, said Bob Carter, vice-chairman of Archimede Philanthropy Partners, a global fundraising company based in New York and London.

“They are the ones giving out of income, not assets. When it comes to donations from people making decisions on their disposable revenue that could affect schools because they tend not be in a position to give as much.”

Top-level donors that are giving gifts at the asset level are still signing the checks. “The people making six, seven and eight-figure gifts will generally continue to make their gifts," Carter said.

Richard Kief, vice president for institutional advancement at Maryland's McDaniel College does admit the conversations to get the “big-gifts” are taking a little longer.

“They are looking for more flexibility in how they make a gift and the decision to make a gift takes a little longer,” said Kief. “But once they’ve decided to make the gift, they also like flexibility on how they fulfill the gift.”

He said donors are looking to spread out the amount of time they have to fulfill their commitment and the flexibility not to be locked into paying the same amount of money each year.

“They want to be able to read the economic situation each year, so if one year is particularly tough, they can give a little less and then up the contribution during an upswing.”

Because major gift donations take longer to work out, a donor may have a legal obligation to fulfill the pledge--even though their personal economic situation may no longer warrant making the gift, Fransen said. “Donors contemplate gifts when they are feeling generous, but also generally honor their pledges even when circumstances have changed.”

The size of the school will also affect the size of the hit budget takes. Larger school like Cornell, which raised $406.93 million in 2007, and Duke which was able to rake in $372 million, have a more global reach and can be successful in fundraising outside of the country, said Carter.

McDaniel College has experienced a slight slowdown in its cash flow from the “moderate and medium level donors,” said Kief. “Because the slowdown is affecting the people who are making gifts out of income and not out of assets, we’ve seen a little drop off recently, because for them, there are more pressures on their income, whether they are spending $80 to fill up their tanks or more at the grocery store, their budget just doesn’t stretch as far as it used to.”

For the small 1,700-student college, donations play a major role, but Kief said the higher-end donors are stepping up to the plate. “With the slowdown in the number of donors, the bigger donors made up for that.”

A decrease in donations can force school officials to rethink certain projects and get creative with their less-than-expected budget. “There are certain things we can’t do and assistance we can’t provide--things like maintenance to buildings, technology purchases and new building projects may have to be extended as giving slows down," said Kief. Financial aid and scholarships tend to be the last thing a school trims.