Thursday, December 11, 2008

Giving to the alma mater: Why?

Do you give money to your alma mater? If not, does it have anything to with your experience at the school? For Canadians, despite their fond experiences at Canadian universities and colleges, they don't give back to their alma mater; and, perhaps, it's not obvious why one should.

In Canada, students enter a post-secondary institution under the following assumptions: I and/or my family pay tuition and taxes fund the rest; once I finish paying tuition, my obligation is fulfilled. By contrast, American schools strike a much different deal with their students upon admission: You pay tuition now, but give more later (implicitly: based on your success). From the first day students set a foot on Harvard campus, they know that alumni have given so they could have excellent experience; and, once they graduate, they are expected to (and about 60% do) give what they can to keep the excellent experience going. In Canada, the best participation rates are near 30% (Trinity College at UofT and Mount Allison take this lofty ranking), while the average is close to 10% - which is 50% less than top US schools.

In summary, I argue that Canadians and Americans differ in the type on the agreement upon admittance with their students. On average, 90% of Canadian university graduates don't feel that it is necessary to donate to their university's annual fund because they don't think that giving after graduation was part of the deal (so to speak). Economic incentives help re-enforce this belief because, perhaps for many, the 'perceived' benefits to getting a degree are given at graduation with no strings attached; I say 'perceived' because the returns to education is not the piece of paper but the benefits realized throughout one's working life (for example, a higher salary or happiness in a profession). From what I understand, American schools help counter act this attitude by social pressure if you don't give (someone might show-up at your place of employment).

Why do I give? At the University of King's College, the New Academic Building was raised a few years ago with no government funding to cover the $9 million bill. From a very small University community (1120 students currently), this was a huge effort. To everyone involved, it was clear that if they believe in the institution, they wanted to keep it alive, and they appreciated that others gave before them so they could have the King's experience. The obligation I feel comes from two factors: (1) I believe in the institution; that is, I want it to live on; and, (2) because I had a great experience as a result of others giving to the university, it is now my turn to give back.

Finally, let me clarify a misconception. Giving to the alma mater's annual fund is not about the amount of money collected, but the number of alumni giving. In the US, the participation rate in the annual fund is used to recruit top talent because it says: "people who came to this place found it of such value, they give back in thanks". Not surprisingly, big donors often ask about participation rates because they want to know if the experience is of value.

The motto of the Wardroom 30th Anniversary Renovation Campaign - an alumni led project to renovate the campus bar at King's is:

"Those who came before us gave so we could party, and now we give to keep the party alive!" - perhaps it should be shortened to "Keep the party alive!"

King's Alumni or anyone else can give online: - tax receipts are given for anything over $10.

Wednesday, December 10, 2008

A description of recent events: The Black Sawn Drive ...

Sorry I have been away. I have been very busy with some recent volunteer work (at the University of King's College ) and, because of my position, it is difficult to provide guidance on the post-Lehman Brothers intensification.

However, there has been some great research produced of late. Most interestingly, the article (dated November 20th) by a group of researchers at Desjardins (article here!) said that puts into perspective why many of us have been left speechless:

"In the past month, investors have observed two events so rare that, when last witnessed, Franklin Roosevelt was midway through his second term as President of the United States—only eight single-day rallies in the S&P 500 have exceeded 10% since 1928, with the 11.58% gain on October 13 representing a ‘10.06-sigma’ event, and the 10.79% rally on October 28 being a similarly unthinkable 9.34 sigmas.

As rare as these events may seem, they are not nearly rare enough (at least according to the normal distribution). To put the recent experience in context, daily returns exceeding 7.5 standard deviations should only occur roughly once every 33 trillion trading days; to have observed even a single such event, the universe would have to have been approximately 10x older than it actually is!"

It is a great time to be an economist. These are historic times that will change the way we think about the world, models and how we evaluate risk. After all this is said, I am really looking forward to teaching again in a few weeks. More postings to come.