College is a time of transition and growth for young adults. As they adjust to their newfound independence and freedom, students often encounter the temptation to overspend and stretch their budgets beyond their means.
It’s easy for students to get caught in the trap of wanting to continue to increase their spending as their income increases, however, this is a dangerous trap to get caught in.
As financial aid directors, it is important to be aware of the risks of lifestyle creep for students and help them remain informed about how to avoid it.
What Is Lifestyle Creep
This phenomenon of gradually increasing spending as income rises is known as lifestyle creep, and it can have a serious impact on a student’s financial wellbeing.1
It’s a natural tendency for people to want to take advantage of their increased financial means and enjoy the luxuries that come with it. For college students, this could mean more money for dining out, expensive clothing, and entertainment.
While these purchases may seem harmless in the moment, they can add up quickly and can lead to serious financial difficulties down the road.
Lifestyle creep can also be driven by social pressure and comparison, as students see their peers living a certain lifestyle and may feel the need to keep up with them. This can be particularly common on college campuses, where students may be exposed to a wide range of lifestyles and may feel pressure to fit in or keep up with their peers.
The problem with this is that when spending habits increase faster than income, it can lead to debt, poor financial security, and potential financial hardship.
Why This Is a Bad Financial Habit
There are a few reasons why this is a bad habit that college students must be aware of so that they don’t find themselves in a financial bind.
- Overspending and debt: As individuals continue to increase their spending as their income rises, they may find themselves unable to keep up with their expenses and may turn to credit cards or loans to finance their lifestyle. This can lead to a spiral of debt, which can be difficult to break free from and can have long-term consequences for an individual's financial well-being.2
- Financial goals: As they continue to spend more money on luxuries and nonessential items, they may not have enough money to save for things that are truly important to them, such as buying a house, saving for retirement, or starting a business.
- Dissatisfaction and unhappiness: As individuals continue to spend more money on things that are supposed to make them happy, they may find that the thrill of these purchases is short-lived and that they are still not satisfied with their lives. This can lead to a sense of dissatisfaction and unhappiness that can be difficult to overcome.
- Financial insecurity: As individuals continue to spend more money on luxuries and nonessential items, they may not be able to save enough money to provide for themselves in the event of an emergency, such as a job loss or a medical crisis.
This lack of financial security can be incredibly stressful and can lead to a number of other problems down the road.
How Financial Literacy Programs Can Help
Financial literacy programs can be an effective way to help college students avoid lifestyle creep. These programs typically provide education, resources, and support for individuals to improve their financial well-being and make smart financial decisions.3
One key aspect of financial literacy programs is education.
Schools can offer workshops, seminars, and online resources that provide individuals with the knowledge and skills they need to create a budget, save money, invest, and make smart financial decisions.
These educational resources can be particularly helpful for students who may not have had a lot of experience managing their money, and might be learning about personal finance for the first time.
Resources and Support
Another important aspect of financial literacy programs is resources and support. Schools can go above and beyond to provide students with access to financial counseling services, debt management programs, and information on loan forgiveness or consolidation.
These resources can be incredibly helpful for students who are struggling with debt or financial difficulties, as they can provide them with the support they need to get back on track.
In addition to these strategies, financial literacy programs can also help students avoid lifestyle creep by promoting a culture of financial responsibility and smart money management.
One way to promote financial responsibility is by encouraging professors to incorporate financial literacy topics into their curriculum. This can include incorporating budgeting, saving, and investing into coursework and assignments.
This not only helps students develop the skills they need to make smart financial decisions but also helps them understand how these concepts apply to their future careers and lives.
Another way to promote financial responsibility is by hosting financial literacy events and workshops on campus. These events can provide students with the opportunity to learn about different aspects of personal finance, such as credit management, investing, and retirement planning.
Encouraging students to participate in financial literacy programs is a very effective way to promote financial responsibility.
These programs can help students learn about personal finance in a structured and interactive way and can provide them with the tools and resources they need to make smart financial decisions.
Financial Literacy with iGrad
iGrad's mission is to empower college students to make informed financial decisions and avoid lifestyle creep. The award-winning financial literacy program offers a wide range of tools and resources, including online courses, budgeting tools, and financial counseling services, that are designed specifically for college students.
iGrad is a comprehensive financial literacy program that can be a valuable resource for college students looking to avoid lifestyle creep.
The program is fully customizable and can be tailored to meet the unique needs of your students and school. It also includes engaging methods like gamification to keep students interested and motivated to learn about personal finance.
Student lifestyle creep is a pressing issue, but by providing students with the knowledge and resources they need to make responsible financial decisions, you can help mitigate this problem.
To learn more about how iGrad can help your students stay informed about their finances, schedule a demo today.
1 - https://www.nasdaq.com/articles/lifestyle-creep%3A-eroding-your-savings-one-raise-at-a-time-2021-08-23
2 - https://www.forbes.com/sites/kristinmckenna/2020/06/22/the-true-cost-of-lifestyle-inflation/?sh=7dd2c07e2423
3 - https://www.trelliscompany.org/wp-content/uploads/2019/06/Fall-2018-SFWS-Report.pdf