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Volume aaa, Number 7 |
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The market and you
TIMOTHY J. RIEMER
COLUMNIST
Many people at this school take an avid disinterest in the stock market. They believe that the actions of the stock market have nothing to with their lives. Granted there are many students who have money invested in the stock market in the form of mutual funds, but the majority of people on campus, I would venture to say, feel that the stock market has no direct effect on their lives. Guess again. The markets have a significant effect on every single student that goes to this school and almost every school and its students throughout the country, if not the world.
Almost every institution of higher education relies, some more heavily than others, on an endowment. This is not news to most people, but what may be news to a lot of people is that the endowment goes toward the tuition of each and every student at this college. I don't mean that the money is taken from the endowment and put towards each of our tuitions, but that funds from the endowment help pay down the overall tuition that each and every student must pay. An institutions' ability to offer a lower tuition, particularly private institutions, is closely correlated with the health of the endowment. Colleges and universities with higher endowments per student can offer a lower tuition which in turn can help to attract more and often better students. Tuition at four year private colleges and universities increased an average of 5.8 percent and increased an astonishing 9.6 percent at four year public colleges and universities. The Wall Street Journal has written articles on how this is result of student demand for better living standards and state of the art resources and facilities such as brand new computer labs and dorms. The truth of the matter, though, regarding these types of expenditures made by institutions, is that they are the result of restricted donations, as is the case with our very own Thorne Dining Hall and its "Thorne Birds."
The more probable reason for the increase in tuition is that endowments of colleges and universities are taking a big hit this year as a consequence of the troubles in the financial markets. Colleges and universities' ability to pay down the tuition has most likely been hurt by the performance of the financial markets so far this year. Bowdoin's endowment shrank 6.9 percent in the 2000 - 2001 fiscal year, a much less tumultuous year than the past year due to events such as September 11th. This could indicate even worse results for this past year. On the other hand, the college could have taken a more conservative stance over the past year which would have helped to protect the endowment from severe market drops in the 2001 - 2002 fiscal year.
Another likely source of woes for the endowment is probably alumni giving. Alumni giving, in all probability, is strongly correlated with the performance of the stock market. The decline in the stock market over the past year has most likely translated into a decline in alumni giving as many alumni, I am sure, are not as capable or as comfortable making as generous donations as they were before. Until the economy and more importantly the markets recover, alumni giving will be facing tougher times.
The status of the endowment is one of the most important indicators of the health of an institution of higher education. Therefore it is important that every student to take an interest in the endowment. Increases and decreases in the endowment can affect the ability of the college to sponsor many of the things we love about this college.