Category Archives: Finance

Why do smart young people go into finance, law, and consulting?

The economists over at George Mason had a discussion this week about professional services firms (it looks like consulting especially, but not exclusively) that led them to try and answer two questions of interest to this blog: why do smart motivated young people join professional services firms, and why do firms hire consultants.  I’m going to try to tackle both questions with my thoughts, so consider this part one of a two part series.

First off, Tyler Cowen offers his theory on why so many smart young people are going into professions like finance, law, and consulting:

The age structure of achievement is being ratcheted upward, due to specialization and the growth of knowledge.  Mathematicians used to prove theorems at age 20, now it happens at age 30, because there is so much to learn along the way.  If you are a smart 22-year-old, just out of Harvard, you probably cannot walk into a widget factory and quickly design a better machine.  (Note that in “immature” economic sectors, such as social networks circa 2006, young people can and do make immediate significant contributions and indeed they dominated the sector.)  Yet you and your parents expect you to earn a high income — now — and to affiliate with other smart, highly educated people, maybe even marry one of them.  It won’t work to move to Dayton and spend four years studying widget machines.

You will seek out jobs which reward a high “G factor,” or high general intelligence.  That means finance, law, and consulting.  You are productive fairly quickly, you make good contacts with other smart people, and you can demonstrate that you are smart, for future employment prospects.

That’s one theory, but I think it only plays into one motivator for a much more complicated decision.  I think Tyler is failing to appreciate just how intimidating graduating from college and choosing a career is for anyone without a technical and focused degree like engineering or accounting.   Up until you graduate college, each step in life is scripted – you go from middle school to high school, and from high school get good grades to apply to college, where you select the best college that you can get into.  All colleges are fairly similar in the sense of what you’ll get out of them is a degree, and all ask for similar inputs in the sense that they really want to see grades, test scores, and extra-curricular activities.  They don’t require you to declare a specialization or have any focused interest, so you can head off to explore the world without the terrifying possibility that you may close off some door to the future.  Law school lets you continue this process for another three years while staying under the comforting protection of the academy.

But applying to jobs is hard.  For starters, unlike colleges where you have a finite number of options conveniently ranked by status on a handful of similar lists, there are tens of thousands of employers in any given community, let alone the country, and the lists that rank them aren’t nearly as thorough or complete (if you ever want to feel good about college rankings, check out the methodology for a best place to work list).  Compare that to law, finance, accounting and consulting, all of which have a smaller number of firms that hire people straight out of school, and which are conveniently ranked by prestige by their own trade publications and sites like   In other words, the professions have their own equivalent of the US News rankings to help college graduates decide.

Not only are there tons of firms offering potential employment in the rest of the economy, but finding them is really hard.  They usually publish jobs on their own company’s websites, maybe the occasional job board (although for professional positions, most recruiters I know don’t like them), and through field specific headhunters.  In other words, even for entry level jobs, they want the new graduate to find them, not the other way around.   Professional firms show up on campus, throw giant parties, give presentations on how their application process, and even host the interviews right in the business school.  It doesn’t get much easier than that.

Finally, when it comes time to apply, all the professions are looking for pretty much the same thing, and it’s happily similar to the college application process that you’re not only familiar with, but have demonstrated that you’re pretty good at.  Fill out your GPA and test scores, write an application essay, upload your resume full of extracurriculars, and get ready for a few years of Excel, PowerPoint, and doc review.  Compare that to non-professional firms that want you to demonstrate your ability to do the job, despite your negligible experience, or tailor your cover letter to their culture when you barely understand what work is like.

In some ways, this supports Tyler’s point – these firms are excellent ways to quickly attain status with low risk.  But put another way, they’re also the easy choice for a generation of college graduates that’s never really had to choose, never had to explore what’s out there, and isn’t ready to settle down and make a career.  Some of this may sound condescending or bitter, but in actuality this process is hugely beneficial to the firms that hire these new graduates, and more importantly to those firms’ clients, as I’ll try to cover in Part 2 when I look at why companies hire consultants.