The Economics of an Unpaid Internship
Good afternoon everyone, I have been meaning to write this all semester, but am just now getting around to it. Nevertheless, I hope some of you find it useful.
By about September of last year (my sophomore year) I was dead-set on doing investment banking. I realized that in order to best position myself for SA recruiting in 12 months, I would need an internship for the upcoming summer. That fall I interviewed with some of the companies I had my eyes set on like JPMorgan and Goldman for their sophomore programs. But I did not get a single offer (or even an invite to their offices). Fast forward to the spring, I got back in touch with some trusted mentors and they told me that an unpaid internship was fine and not to worry about the money – that I would make it back, and more, if it helped me secure a BB internship the next summer. Coming from not much money (qualified for free lunch at school for three years of HS), I was very skeptical; but I listened to them. I ended up accepting an offer from a fund away from my hometown in a middle tier city (DC, CLT, ATL).
Now down to the nitty gritty, what did my costs look like? I ended up spending about $3700 for my 3 month stay, which is just over $1200/mo. (not too, too bad in my opinion).
By far my biggest cost was housing. I spent $1500 ($500/mo.). I think this is where I was the luckiest. I was able to stay in a very nice suburb of the city with a friend I knew who graduated a few years prior to myself. I wanted to stay for free, while he wanted ~$700/mo. I offered $1500 upfront, and he agreed (sidenote: this is why I like dealing with individuals over institutions. I think it is much easier to have negotiations like this with individuals.). This ended up saving me $500-600, or ~15% of my eventual expenses.
[I will also note here that $1500 should be sufficient for housing (except in NYC/SF areas). Prior to getting in touch with my friend, I had been on Craiglist and found numerous postings in the $400-600/mo. range. A lot of these were college apartments where the students would be home for the summer. Obviously these aren’t as nice as where I ended up staying, but they are more than sufficient. Also, because their costs are sunk already it is pretty easy to negotiate with these kinds of people.]
Other large expenses included food, on which I spent about $550 (~$180/mo.). This includes breakfast, lunch, and dinner pretty much every day. Breakfast I would either have a bagel with peanut butter or a bowl of cereal with either milk or yogurt (this is pretty cheap, healthy, and filling). For lunch, I had either Panera or Chipotle pretty much every day. I had not discovered the greatness that is the Chipotle burrito bowl until a couple weeks into my internship. After that, there might have been two or three times I didn’t get one for lunch (it tastes amazing, is extraordinarily filling, decently healthy, and costs only $7 with water to drink). Also, nearly every Friday we would go to lunch as a large group. This was great because we got to get to know other people at the firm, we got a nice(ish) sit-down meal, and it was free. As for dinner, at the beginning of the summer I wanted to learn how to cook, so I bought salmon or tilapia a few times. This was very short-lived, though, and soon enough I was back to having sandwiches with a salad every night. It was much easier, less stressful (didn’t have to worry about burning down the house), and cheaper. This also includes a couple nice dinners that I took girls out to and the few times I had to pay when getting drinks after work.
Next comes the $300 I spent on “Entertainment.” Not sure why I categorized this as entertainment, though, because it is pretty much just golf. While I didn’t get to play as much as I wanted to, I was still able to play about once a week (~12 times total). Looking back, I thought this number would have been much higher given how expensive golf is in cities. Two things I did to keep costs down on this: 1) I always walk – it is good for you and helps me to just relax – and 2) I would drive outside of town to the shittier (and cheaper) courses – I am not a scratch golfer and not the son of a [insert lucrative career] so shittier is something that will suffice for me.
Thankfully my workplace was business casual (people even wore golf shirts regularly) and I already had a decent amount of clothes to fit that. I still spent ~$300 on clothes for the internship though. I went to Jos. A Bank to get some dress pants, and ran into the clearance rack. Walked away with what is probably my favorite suit to this day for $140. Also got a couple shirts on super clearance at the outlet mall ($125 shirts for ~$30), and an amazing pair of AE loafers at a second-hand store for dirt cheap.
I also spent ~$150 on other clothes during the summer. This was mostly golf shirts. Clothes shopping is one of my favorite things to do; I love finding great deals on nice clothes. I wanted to separate this from professional clothes shopping because I view this as discretionary spending that wasn’t really necessary for survival of the summer.
Since we’re on the topic of discretionary, I will add in the ~$500 of what I called “Do not count” in my spreadsheet. This was ~$400 for a new phone and insurance because my upgrade was over the summer. And ~$100 of automatic investments that I make into an account on a regular basis. I don’t think these should really count against my summer expenses either because they would have happened regardless.
This brings us to a good wrap-up of expenses. I spent ~$225 on gas over the summer. This number seems lower than I would have expected because I drove ~1.5hrs home pretty regularly to work on the weekends, but I didn't have far to drive to work everyday (and gas is pretty cheap right now).
I will now transition to income, which I think is the biggest part of surviving an unpaid internship with no source of capital behind you (ie. Parents). I think there is a pretty set floor to expenses. On the other hand, working on the weekends can greatly counter the money you are dishing out. Obviously this only works if you are not working on the weekends, but I think that it is reasonable for you to get weekends off if you are not getting paid. Like I said, I drove home to work. I’m sure that I could have found something in town, but I had a good setup at home. I got paid ~$200/weekend and worked about 10 weekends for a grand total of ~$2000 of income. I also neglected to mention that I got a weekly meals allowance that came out to ~$500 for the summer. So in all, I had a total income of $2500.
To summarize, I spent a total of ~$3700 over the course of three months, and counteracted that with an income of ~$2500 for a total deficit of $1200 ($400/mo.). When taking out unnecessary expenses, the expenses fall to ~$3000 for a deficit of $500 (
I will also say that taking on relevant internships helps even at the Summer Associate levels. I did a pre MBA internship that required me to quit my job and not travel for the few months before business school and it helped me land my top choice for BB IBD.
If you're comparing an unpaid internship to a paid internship you should be thinking of the opportunity costs, i.e. how much pay you're giving up, rather than cost of living which you will be paying for either way.
I wasn't really looking to compare a paid internship to an unpaid. Rather, an unpaid internship to no internship. My specific alternative that I was wavering between was working in town where I had the past couple summers. I made about $3500 each summer, but was not relevant to anything other than potentially showing leadership.
Though not every paid vs. unpaid internship comparison is apples to apples, I imagine that in the vast majority of cases you would be better off taking the paid because of the said opportunity costs. In my case, I could have gotten a corporate finance internship at a F500 pretty easily, but I just didn't really see it adding any value to my story or skill set. On the other hand, the offer I did take I felt was a perfect stepping stone to what I wanted to do (IB) and also give me some insights into what buy-side is like. I think I 100% make the right decision, as I absolutely loved the experience, learned a ton, and proceeded to coast through my interviews this fall.
Well at least you're anal enough in tracking your expenses to be a banker and you're already negotiating. :) Good job.
I'm curious because I've always been places where we paid interns, even if minimum wage with some kicker at the end of the summer/semester, but within the last few years I thought I heard that legislation was going through to make non-paid internships illegal. I didn't pay much attention to it until I was at a company last week and they mentioned that they used to have unpaid interns until recently when it became illegal, but they could have interns in a "program." It wasn't the focus of my meeting but they said something along the lines of not being able to have interns just do work unpaid and that it had to be a structured learning experience, almost like it was a class even if they did or did not get school credit.
Like I said, I'm just curious because I hadn't given it a thought until last week and saw this post.
Hahaha well thank you, I guess? Like I said, I grew up without a lot of money, so every time I have money leave my pocket it hurts a little. As a result, I am very frugal (I also love numbers, and have a habit of making spreadsheets for everything).
As for the legality of unpaid internships, I had heard murmurs about it being illegal. I didn't really know if this was true, just speculation, or something that was coming. It didn't affect me at all, though, as I would not have brought it up even if I knew for a fact it was a law that was in place. Everyone at the firm was amazingly helpful throughout the summer, and I'm sure I would have been treated differently had I been in a paid position. I was often told to go home at 3p on a Friday afternoon or 5p on a Tuesday (and I never worked weekends); they definitely understood that I wasn't being paid.
I will also make a comment regarding that legislation, in that I definitely think it comes from a well-meaning place, but will not have the intended results. At the risk of bringing up a touchy subject, I think it is much like the minimum wage laws that are being argued. Yes, theoretically, paying people $15/hr. helps (paying the interns helps); but in actuality it only helps those who are still kept on to receive the raise. I think there are countless places who hire interns on an informal or one-off basis who would no longer be able to do so if these laws were strictly enforced. My firm is a great example. There is no way they would hire interns if they were legally required to pay them. I would be interested to hear others thoughts on this, though.
I am about to do the same thing and was directed to this post by a couple people. I have to ask where are you now? Did it help in the recruiting process and were you able to land an internship this summer?
I am going to be with JPM this summer in NY. I got the offer from them in October and never looked back (actually, I had to get talked out of interviewing with GS).
But, like I think I said in my post on your thread, having the relevant experience (I believe) was the difference in the recruiting process. I almost exclusively in interviews talked about deals that I worked on or saw come through. Obviously there are many other factors, but I think it made all the difference for me - especially coming from a non-target (semi-target, maybe).
Also interested. Currently deciding between a Boutique in NYC vs. a F100 corp fin internship in Boston.
Sorry that I didn't respond to this yesterday - don't get notifications for you commenting on my post.
I will say that in your situation, I think you made the right decision. 1) Brand name is meaningful during recruiting. If you don't go to a target, this can help you with that "validation." 2) This write-up is mostly (solely) geared towards not NYC because the COL there is just too high to make up the difference like I did.
The downside is that you will have to spend time preparing for ib interviews in the fall. I doubt that you'll really do much relevant work at the F100, so technicals won't just roll off your tongue naturally (after a summer in IB/PE, talking about EBITDA multiples, CIMS/MPs/LPs, etc. really does just flow naturally).
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