The Financial Health of Pastors

Study points out key issues as churches seek long-term solutions.

At any given moment, there are people in a church congregation who are in the grip of a financial crisis. One of them could be the pastor.

In a 2015 study by the National Association of Evangelicals (NAE), more than four thousand pastors were surveyed about their financial health. This study reveals the depth of a situation that reaches across boundaries of theology, governance, and polity. Among the findings:

  • 30 percent of pastors have student loan debt averaging $36,000;
  • 3 out of 4 carry some type of nonmortgage debt (student, medical, or other debt) averaging $31,593;
  • 33 percent have less than $10,000 in retirement funds, and 29 percent have no retirement savings;
  • 84 percent do not have funds to cover emergencies and major purchases; and
  • 31 percent work second jobs.

The NAE survey was made possible through a nationwide, multiyear initiative by the Lilly Endowment to strengthen the finances of pastors. Numerous organizations have received grants from the endowment to create awareness about this issue and to educate denominations, churches, and pastors about how to respond. Leith Anderson, NAE president emeritus, said his organization’s three-year project involves three denominations and is already looking to expand.

When Richard (Rick) Foss started his tenure in the 1990s as a bishop in the Evangelical Lutheran Church in America’s Eastern North Dakota Synod, he quickly concluded the situation wasn’t the fault of the pastors, but of a system that encouraged borrowing to pay for education.

Foss led an effort in his synod to improve the finances of clergy (see sidebar “Reducing Debt and Building Financial Security”), which became one of the blueprints of a 2007 program called “Economic Challenges Facing Indiana Clergy.” Foss has led the effort to take this field-tested program nationally under the auspices of the Lilly Endowment.

Searching for solutions

Any church strategy to help deal with the challenges of pastors and personal finances should have three essential parts: increasing awareness; building a collaborative environment; and raising the financial education level for pastors, leaders, and laity.

Building awareness and collaboration to root out conflict and competition for scarce resources precedes taking specific economic steps.

“Sometimes a key factor is having a laity champion who understands and who has great empathy for the pastor. That champion can say things and raise issues the pastor has difficulty doing and can rally a core group of people who are committed to finding solutions,” said Mark Rennaker, a pastor who has helped lead the Lilly Endowment’s national initiative.

Savings and retirement plans

Younger pastors can fall into the trap of believing they don’t need to start a retirement program now, so they put off laying the necessary groundwork for retirement.

Starting a plan is the most important step, more so than the amount of money contributed. A proactive step churches can take is to bring in a qualified financial planner, tax consultant, or accountant to assemble a plan that works in harmony with the pastor’s employment contract and payment structure.

A retirement plan can start with something as simple as dedicating funds for setting up a retirement account, rather than a general compensation package where the church forwards a set amount to the pastor. A better approach is to put salary and benefits in different buckets, according to Phill Martin, chief executive officer of The Church Network.

“If you have a young minister who has school debt and you offer them a low total package and let them pick how to spend it, it’s very difficult for them to see their way to allocate the money for retirement when they’re in their early 30s,” Martin said.

Medium-size and larger churches are most likely to provide a 403(b) retirement program where the church annually contributes a fixed percentage of the pastor’s salary or agrees to match the contribution of a pastor up to an amount such as 3 percent or 5 percent of salary. “This is a wise and wonderful investment in the pastor’s eventual retirement from ministry,” Anderson said.

Another option for churches is to designate an amount from every check for a personal savings account. Employers don’t match these designated funds, but setting up the account and encouraging savings will improve the pastor’s long-term financial situation. Saving a small amount of money is better than saving no money.

Pastors, like other Americans, generally have a low savings rate, but with one key difference: their commitment to tithe to their employers. “If they have to choose, most pastors will give before they save,” Anderson said.

Relieving the pastors’ debt load

Personal debt is the responsibility of the pastor, but churches can find ways to help reduce some types of debt. For example: “Student loans benefited the church, so the church takes offerings to pay down those loans. [Or] a member of the pastor’s family is diagnosed with a disease or involved in an accident with high medical costs, and the church family rallies to underwrite the costs,” Anderson said. (Church leaders should consult qualified counsel about the tax implications of any collections used to provide debt relief or benevolence for a pastor or a member of the pastor’s family.)

Change the financial climate

Churches should encourage pastors to speak honestly about their financial matters, and involve wise lay leaders who can offer safe, confidential ways for them to do this.

Rennaker gave an example of how not encouraging this honest communication can be costly to a pastor: when vice-chairs of church boards were given a previous Lilly Endowment survey, there were occasions where the vice-chairs didn’t know how to respond and took the survey to the pastors; and in one instance, a pastor disclosed the implications of an unwritten expectation that he take church guests out for meals and pick up the tab, a practice that cost the pastor hundreds of dollars a month.

Churches can also put together teams to give financial advice to pastors. Team members can be people in formal or informal positions, but whoever they are, they should be people of influence who have familiarity with finance, tax, and law.

“I tell pastors that they don’t need to be financial gurus, but they should be able to read a spreadsheet and balance a checkbook. They should be able to tell good financial people from bad,” Foss said.

Salary negotiations

Determining salaries can be an especially delicate process. Pastors can be uncomfortable with the nitty-gritty of negotiations, and boards may have unrealistic expectations of the clergy job market. Martin counsels churches to compare the salaries paid to leaders in the church to salaries in nonprofit and corporate communities—in the context of the pastor’s job requirements.

The church treasurer occupies an important position in matters of setting raises in pay. At times, laity—even board members—have limited knowledge of a pastor’s compensation package and how it compares to similar churches or situations. The treasurer is then asked whether the church can afford a raise in pay. The treasurer’s response is crucial, Rennaker said.

“If a church is already in a tight financial situation, the outcome tends not to be favorable [or at least not generous] on behalf of the pastor,” Rennaker explained. “The point is not to place blame on treasurers. Rather it illustrates that pastors’ economics are part of a system. Treasurers are often gatekeepers in that system, and solutions for pastors will have to address the system, including support and training for treasurers.”

The small-church challenge

Smaller churches with limited resources can spare their pastors the responsibility for purchasing items such as office supplies.

“One of our churches became aware of that and instituted structural changes such as a reimbursable expense account,” said Rennaker. “In other cases, pastors receive corporate credit cards with the necessary checks and balances.”

Small churches struggling with limited resources may find help by asking their congregants to give more to shore up their financial structure. And networking can also help. “The most practical step is to go to another church of similar size and geography that has had financial success and ask for advice on how they did it,” said Anderson.

Smaller churches have a limited talent pool of people with expertise in finance. Board members and treasurers should take advantage of resources, denominational and otherwise, to learn the nuances of clergy compensation, which may not be the same as compensation in their own lines of business. Obviously, this advice applies to all churches but is especially important for smaller churches.

The beginning of change

Reflecting on the Lilly-funded efforts, Rennaker said Lilly is getting better at understanding the issues, reducing the time it takes to ask the right questions, and taking the necessary steps to work with denominations and individual churches.

Foss considers Lilly’s initiative the beginning of a longer process: “It’s not a three-year program or a six-year program but a three-year launch into changing the patterns, behaviors, and cultures in whatever part of the body of Christ you’re inhabiting.

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