These days, some people are worried about the affordability of college. The concern is that rising college prices are turning high education into a recycling plan for privilege, ensuring that the children of those who were successful in the past will continue to be successful in the future. But if college is the source of meritocratic angst, then Wall Street is its distilled essence because Wall Street is where the privileged go to most directly cash in on the economic benefits of going to a good school.
To get an idea of how prevalent finance careers were, and still are, one needs to look at the acceptance rates for these jobs from top universities. In 2008, 28% of Harvard graduates went into finance, and though that number is now down to 17% (of those going into a full-time job) in 2011, the number from Princeton is still a shocking 35%. People are going into finance like crazy, but what is the allure?
Ezra Klein puts forward the idea that finance hungry undergrads are the product of a failed liberal arts education, which does not prepare them with any meaningful job skills. Confused undergrads then, in their junior and senior years, realize that they need a job, but are ill-prepared for most positions and so rush into finance. On top of this basic educational argument, Klein layers a sociological explanation as well. Finance jobs can be obtained through a predictable and rigorous application process with prestige awaiting for those who run the gauntlet effectively. Since Harvard kids are familiar with applications – the theory goes – they are easily entranced by a complex application process that yields riches and prestige.
I disagree with both claims. It's not about the seductive ease of the application process, and it's not that a liberal arts education fails in virtue of not offering job skills. Instead, it's about the way students and our society understands the value of a liberal arts education, and the rise of narcissism.
There is something to the idea that applications are appealing, but it doesn't have anything to do with applications per se, but with the safety they represent. Plenty of fields like academia (I know, I just submitted applications) have paths well-marked by hordes of questionnaires and personal statements, and not many people go into academia.
The fact that students feel compelled to follow well-marked career paths is a failure to understand that a liberal arts education is not training to do any one thing, but a way to approach all things, even one's own life. Learning to take ownership of ideas is supposed to train students to take ownership of their lives, not to just serve as a tool to win arguments with other people in government and business.
Plenty of people defend a liberal arts education on the grounds that it makes people better critics of their social environment, but it's not enough to question one's environment, one must question one's own motives and desires as well. The reason this doesn't happen is because of a society-wide concern with the self-esteem of young people. The self-esteem movement has made lucky college kids into egomaniacs who rarely question the validity of what they want. This isn't me trying to slur my peers, but a well-documented fact. People are becoming much more narcissistic. When that happens, the interrogation of our most basic direction ceases and we're more vulnerable to the easy road or to snap judgments.
Notice though that I'm not saying that finance is a dirty or bad industry. I don't think it is. There was a bubble in the finance sector that had been building since the 1980s (see here, pg. 62), and people got into it. There are many good reasons to be a financier, but the rise of narcissism in young people perfectly matched the bubble in financial services and the result was that finance was the outlet.
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The Discussion
Finance is the study of efficiently allocating resources through the control of money management. If the kids are attending an Ivy league school, they are probably pretty smart. It makes sense that the smart people should study how to allocate resources effectively in our society.
The reason the Princeton numbers are higher is because Princeton has an engineering program, Harvard doesn't. Finance is a specialized and complex field that requires a business knowledge base, but even more importantly, a solid understanding of math. Lots of engineers rush to finance, especially from top school. My alma-mater now even offers dual degree programs for business and engineering. The major 'Financial Engineering' has even come into vogue in recent years (its just finance classes coupled with an industrial engineering degree). Finance and Economics are also both math based.
I would have liked to get a breakdown of the numbers. I have friends who fall into two very distinct categories and work in finance, aka "Wall Street" environment: those who come from well to do families and those who are the first in the family history to go to college. The motivations are very different, with some wanting to continue the family tradition and others wanting to get out of poverty and provide a better standard of living for themselves and their family. Neither is to be scoffed at, for this industry does provide the means by which entrepreneurial activities and philanthropy of our nation have developed.
Why do Ivy Leaguers go into finance? For the same reason anyone does: it's the fastest way to make pots of money, pay off your student loans, and be able to spend the rest of your life doing what YOU WANT. And then, of course, there's the power element...
I'm not sure very many people understand finance and the benefits of the industry. I tried to outline some of the important activities that occur at investment banks in an essay I wrote several weeks ago. Unfortunately, many young people are disillusioned about the industry and see it as an unproductive business. With this perspective, it is no wonder that finance applications are less today than before the economic crisis.
Why is it that business has become a dirty word? Almost all of us work for businesses. They provide goods and services relating to nearly everything we do, wear, see, etc. And these businesses need to be financed. They need money to grow, to employ, to invent, to help defend our country. Banks and investment banks serve this function.
So, why is it that young people are so turned off by finance education and careers? Do you object to the over sized compensation paid to those who are successful? I just don't get it. What I will tell you is that investment banking is not for the faint at heart. You will not be successful in the business unless you are prepared to pay the price, long hours, difficult working conditions and seemingly unreasonable demands on your time.
What is the gratification? You may not appreciate this, but doing deals is a rewarding experience. Deals in this day and age are very complex and require great analytical and marketing skills to complete. And of course, there is the compensation. If you are able to successfully close transactions that result in large revenues for your company, you will earn large bonuses. Some people evaluate their success with money and some don't.
I was in the business for a long time. It was very difficult and very rewarding. Having said this, I still believe a liberal arts education is the way to go. You can learn the financial stuff later. It is better to be a well rounded person than knowing how to do a spread sheet. I recommend you do not dismiss a financial career without looking into it.
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Money, enough said.
Glad you wrote this, Jordan. I did not go through the "e-recruiting" process on campus or follow the post-graduation finance path, so I'll be interested to hear from commenters who did. In the meantime, I think there is another factor at play affecting why Ivy League graduates flocked to finance: Those jobs carried a sense of exclusivity and prestige. Because of the competitive selection process and the "brand names" of the companies, people developed a hierarchy of paths in their minds. In a way, going to McKinsey or Goldman or wherever became one of the standard things to do for someone with strong grades, extra-curriculars and interview skills. If you had those qualities, it became surprising NOT to apply to those firms.
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Nice article, Jordan. Also, I'm largely in agreement.
I'd be curious to see the stats of earlier graduating years (1990's, 1980's, etc.), to place all of this in a broader context.
I think what's happening here is not just that elite grads are choosing to go into finance, but also that the finance industry is choosing to offer its lion's share of openings to elite grads. After all, a Liberal Arts grad fm Princeton probably not only has better than average quantitative & assessment skills, but also likely has access to potential clients that other non-elite grads do not. Plus the Alma Mater has an interest in its progeny being "successful" and likely has "career" offices on campus to help with the application/interview process...
Many freshmen have idealistic dreams of careers involving social justice, climate change, economic development. But they forget how difficult they are and become disillusioned by the overwhelming challenges on finances and morale. And now even many liberal arts schools don't require exposure to philosophical/ethical thought - the "big questions" - and so more students lack the intellectual moral urgency to drive them through these challenges.
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I agree that Harvard grads don't go to Wall St b/c they like the application process (that seems a little silly). And, "it's not that a liberal arts education fails in virtue of not offering job skills." It's that a liberal arts education fails to deliver job skills that garner a salary which would enable a person to pay back the college loan debt incurred at a place like Harvard, Yale or Princeton.
I got a B.A. in political science. What a complete waste! What in the world was I going to do with a political science degree if I didn't get into law school? Certainly nothing that would enable me to pay off hundreds of thousands in student loan debt.
I would have been far better off majoring in business, finance, etc. . . I would have gained skills that are actually marketable. If you plan on going to a high priced school, you'd better get a degree in a field that would garner a salary able to pay back the bills that come rolling in.
Years ago, someone could graduate from Harvard and take a public sector or academic position b/c they weren't drowning in debt. Today, those kids need to get a job that pays. I wouldn't say that's narcissism, it's just common sense.
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I personally believe that the results stem from a much simpler explanation - incentives. It's hard to fight 6-digit salaries coming out of college. Period. Unless you're independently wealthy or have been groomed by either a family support structure or strong mentors to go into a particular field that isn't finance/management consulting, incentives win out.
The only reason I didn't pursue finance was because I knew I wanted to go to law school. If was I was unsure about law school, its a safe bet that I would have pursued finance or consulting. It's practical experience, high-levels of responsibility, and a huge paycheck.
Check out this discussion started by a Stanford prof on this very issue/article: http://tinyurl.com/7dr5t92
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