By Scott McConnell
We know our church exists inside the current economy, but we may not consider the influence it can have on us.
With so many factors within our congregation that impact the well-being of our church, we may have no desire to pay attention to external factors. But both internal and external factors have a real impact on our church.
That real impact is the reason that a classic strategic exercise looks at two internal factors (strengths and weaknesses) and two external forces (opportunities and threats) that impact an organization.
Let’s look at several of these economic impacts.
A church’s income is the collective donations of individuals. These people either give from money they earn or money they’ve saved. So, when members of your congregation are unemployed, this has a direct impact on your church’s income.
Similarly, when they are underemployed (working fewer hours or in a less skilled job than they would want) this impacts their ability to give.
Current national unemployment rates are at historically very low levels. In fact, many economists didn’t think these rates were possible a few decades ago.
Over time we see the prices of most goods and services rise. The rate that this occurs is called inflation.
The Federal Reserve Board (“the Fed”) has two stated objectives: 1) maximum employment, and 2) stable prices for the goods and services we all purchase.
The Fed has clarified that their goal in the long run is to keep inflation at around 2% per year.
The most recent annual change in Personal Consumption Expenditures Index was an increase of 1.4% (August 2019).
When inflation is high, it makes it difficult for a church to make financial plans and to manage money. Prices can increase between the times funds are raised and a purchase is made.
These differences tend to be most evident in large expenditures such as construction costs, but they can also affect purchase of paper towels and coffee.
When actual costs come in higher than budgeted because of price increases, inflation has impacted your church.
Inflation can also impact a church’s annual budget in the two largest expenditures for most churches: personnel and facility expenses.
Historically, insurance benefits have had higher inflation than other prices. Churches can shop around for companies with better rates or adjust the coverage they offer, but at the end of the day inflation costs the church money.
Utility cost increases also directly impact expenses and there rarely are alternatives to even explore.
Keep in mind: The wages of your staff should take into account inflation. If you hire a minister at a specific salary, a year later the real value of that salary has declined by the rate of inflation.
That salary can purchase less goods and services than it could a year before because prices have risen.
If your church doesn’t give at least a cost-of-living raise, you are indirectly telling a staff member their work is worth less to your church than it was a year ago. Also take into account their growing experience and effectiveness in the wages you pay.
Yes, your church can decide what amount of cost-of-living raise to give, but whether this actually covers the real purchasing power of that salary is determined by the actual inflation rate.
3. Interest Rates
Changes in interest rates can have both positive and negative impacts on churches, because interest rates impact both interest on savings and the cost of debt.
When interest rates rise or fall it directly affects interest income for churches with money held in savings, CDs, or money market funds.
Retirees tend to hold much of their savings in safe investments that pay interest. This group tends to be the most faithful givers in a church. Their income and funds to give from are also more sensitive to rises and falls in interest rates.
Rising interest rates will hurt individuals and churches with variable rate loans. More of their dollars each month will go to pay for their debt.
Declining interest rates will immediately help those with variable rate loans. Declining rates also mean any upcoming fixed rate loans or mortgages will cost less to finance than they recently have.
All these changes have a real impact on both savers and borrowers. You can root for interest rates to rise or fall, but where they go is outside of your control. Most recently, interest rates have been declining.
Individual income and sales taxes have a direct impact on the money available to people in your congregation. When taxes rise, people have less money for other things. When taxes fall, they have more.
During 2018 pastors noticed some benefits from the 2018 tax reform as most employees had less money withheld from their paychecks for taxes.
However, the tax reform also led fewer Americans to itemize tax deductions meaning fewer taxpayers receive a tax incentive for giving to charities.
By 2019 few pastors see any benefit from the legislation as individuals adjusted to the new amount in their paychecks.
At the end of 2019, the external impact of the economy by any objective measure should be positive on most U.S. churches.
Yet when Lifeway Research asked Protestant pastors, similar numbers think the economy is impacting their church positively (30%) as think the impact is negative (26%). A larger group (41%) thinks the economy is having no impact on their church.
It’s true there may be no evidence of any impact from these four economic forces today. But this is only possible if there are counter forces that are at least as strong neutralizing their impact.
In the current season, that means other forces are at play that are keeping churches from seeing economic benefits that they should be seeing.
Examples of counter forces that may be disguising the influence of the economy on your church include:
- A large portion of your congregation on a fixed income
- Declining attendance (about 28% of churches over the last 3 years)
- Poor budgeting or estimating expenses
- Few givers tithing on their gross income
- Attendees’ unwillingness to be generous toward the church
- Unanticipated church expenses
In the same way we often greet people by asking how they are doing, it is wise to pay attention to economic reports that tell us how the economy is doing. It isn’t a person, but it directly affects your people and your church.
SCOTT MCCONNELL (@smcconn) is the executive director of Lifeway Research.