Advising Financially At-Risk Students: Detecting and Addressing Premature Affluence

The Emergence of Affluent Student Lifestyles

Bachman (1983) introduced the term premature affluence in the 1980s to refer to the emerging pattern of discretionary spending—that is, money spent on items other than one's own living expenses such as rent, utilities, groceries, health care, and other necessities—displayed by high school students with part-time jobs. His research on student employment and spending habits revealed that although some students contributed to their own living expenses and saved money for college or other long-term expenses, the majority spent most of their money on cars, clothes, entertainment, recreation, hobbies, gifts, and other personal items (see also, Steinberg, Epstein, & Owen, 1998). Bachman discovered that parents provided for all or most of the students' living expenses, allowing the studied students (who lived at home) to spend their earnings solely on nonessentials for themselves. Bachman referred to the student spending patterns as affluence because it reflects discretionary spending. Buchman referred to the spending habits as premature affluence because many, if not most, of these individuals would be unable to sustain their consumption upon matriculation if they were forced to pay for their own college room and board (Shaffer, 2012).

After World War II, opportunities for high school students to earn significant amounts of money had multiplied because of growth in the service sector of the economy, especially the fast food industry. Despite arguments that part-time employment among high school students presents a means for young people to learn financial responsibility and the value of a dollar, Bachman (1983) concluded that allowing students to engage in complete discretionary spending without bearing any costs of their own living expenses resulted in a sense of entitlement to an affluent lifestyle that most of them could never sustain as independent adults. In fact, Bachman found that individuals, including those fully employed and earning more money than they had during high school, experienced less satisfaction with their postgraduation standard of living. Social psychologists refer to the experience that Bachman described as relative deprivation—a sense of resentment based on a belief that one is being divested of a deserved status or an expected standard of living (Shaffer, 2012).

Since Bachman published his research in 1983, more high school graduates have matriculated into college and the locus of the premature affluence problem has shifted from secondary to postsecondary students (Shaffer, 2012). Although some students anticipate living like a starving artist, more enter college expecting to make few sacrifices in their accustomed living standard, which may prove unsustainable even after they have earned a college degree (Shaffer, 2012). In fact, college students strive to be admitted to college believing the resulting degree will allow them to make enough money to live an upper-middle class lifestyle (Bonfiglio, 2009; Shaffer, 2012).

A long list of expenditures in addition to the costs of tuition, fees, books, housing, and meal plans cause skyrocketing college costs. Students accustomed to liberal amounts of spending money may see the following items as necessities rather than luxuries (“Boomerang Generation,” 2008; Robb & Pinto, 2010; Shaffer, 2012):

• comfortable accommodations. Some students plan to spend up to $1,000 on furnishings and decorations, such as furniture, appliances, electronics, rugs, and the like, for their residence hall room (Clark, 2005).

• cars on campus. When college rules permit it, students often want to keep a car on campus, meaning they will be making monthly payments on auto loans, gasoline and oil, maintenance, and insurance (Clark, 2005; Hayhoe, Leach, Turner, Bruin, & Laurence, 2000).

• cell phones and electronic computing devices. Students can easily rack up large bills for monthly plans that cover costs of connection and services such as texting and web access minutes as well as downloadable apps and games (Cheney, 2010; Fairlie, 2010; Hayhoe et al., 2000; Lepp, Barkley, Sanders, Rebold, & Gates, 2013; Saadi, 2010; Seckler, 2005; Shaffer, 2012).

• computers. Only a decade ago, most students only owned a desktop unit. Now, they purchase laptops, notebooks, and tablets to take with them to class or the library. Once purchased, these devices often trigger more spending as users acquire software packages as well as noneducational games and music to enjoy (Fairlie, 2010; Geer, 2012; Shaffer, 2012).

• entertainment. Students spend for one-time events, such movies or concerts, and extended sprees of celebrating and partying, which often include the costs of alcohol (despite the likelihood that many drinkers will be under the legal age to consume it) (Bernthal et al., 2005; Johnson & Lino, 2000; Wang & Xiao, 2009).

• apparel and footwear. Although no one can argue the utility of appropriate attire, the desire to dress fashionably can drive up the costs of living considerably (Bernthal et al., 2005; Bodnar & Johnston, 1993; Hayhoe et al., 2000; Seckler, 2005).

• food. Over the costs of meal plans, most students pay for food consumed away from campus as well as for special meals and celebrations with friends (Alvarez Marten et al., 2009; Bernthal et al., 2005; Brooks, 2005; Johnson & Lino, 2000; Wang & Xiao, 2009).

• personal care products and services. Students must purchase items required for personal grooming, but the costs of salon hair treatments, manicures, and pedicures can add up quickly (Seckler, 2005).

• travel. The single biggest ticket items contributing to college costs often involve travel. Many prospective college students consider seasonal entertainment travel packages inherent to the college experience and fully expect to follow the football team on the road, book winter ski trips, and, of course, participate in spring break in the southern hotspots (Hayhoe et al., 2000; Higgins, 2002; “Yikes! My Kid's a Social Butterfly,” 2004).

Some students possess the means to live an expensive lifestyle, but for those less wealthy the temptation to overspend beyond one's means, going into debt, creates problems with potential long-term effects (Shaffer, 2012). The easy availability of credit cards promotes overspending, and the growth of credit card debt reflects the means by which many students establish and maintain their affluent lifestyle.

The Role of Credit Cards in College Student Debt

College students typically go through a unique developmental phase as they transition from direct parental supervision and support to independence and responsibility for themselves (Shim et al., 2010; Wang & Xiao, 2009). Although they have likely learned consumer attitudes and cash management skills from their parents, most college students have reached an age to sign their own legally binding documents, such as credit agreements, and thus begin accessing credit with minimal or no oversight (Wang & Xiao, 2009). Most students make mistakes in handling their finances, but the steep learning curve in the handling of credit cards creates particular hazards for those practicing a trial-and-error approach to personal financial management (Silver-Greenberg, 2007)

Credit cards offer unique borrowing experiences because of the ease with which they are issued and universally accepted by merchants (Bernthal et al., 2005). In addition, credit card companies target college students because of the volume and habits of their discretionary spending (Hoffman et al., 2008). In 2008, for example, college students collectively exerted approximately $237 million in spending power, which translated into an average of $17,400 per student (“Big Bucks on Campus,” 2008). Ironically, the recession that affected so many people made little difference in students' purchasing behavior: 85% continue to receive financial support from parents, so students, as a group, were buffered from the impact of the economic downturn (“Big Bucks on Campus,” 2008).

Credit card companies regularly extend a level of credit beyond students' current incomes and means to pay (Bernthal et al., 2005; Silver-Greenberg, 2007). These policies would seem to reflect bad business practices, but the companies count on helicopter parents to swoop in and bail their indebted children out of financial crises (Scott, 2007; Silver-Greenberg, 2007). These practices also benefit sellers because students with credit cards tend to overspend (Dougherty, 2010; Robb & Pinto, 2010; Silver-Greenberg, 2007). Most college students have grown up with credit use as a way of life (Robb & Pinto, 2010); they accept indebtedness and expect to take on extensive financial obligations from credit while attending college (Silver-Greenberg, 2007).

Student borrowers use their credit cards to “construct the lifestyles to which they feel entitled with little regard for the implications of such practices for economic capital” (Bernthal et al., 2005, p. 142). More specifically, “Credit card practices exemplify their entitlement ideology through the employment of commodity consumption directly in the service of attaining or maintaining status, as well as altering mood” (Bernthal et al., 2005, p. 142). When students do not find intrinsic rewards in attending college, especially if their motivation to enroll stems from fear of earning less than their college-bound peers, they often feel compelled to spend money to reward themselves for enduring the hardships of going to classes and doing assigned class work (Bernthal et al., 2005).

Credit card practices guided by an entitlement ideology often result in a myopic, short term focus on need gratification or mood repair… . These practices represent the ability to gratify and self-medicate with card-enabled consumption during times of distress. In other words, informants frequently felt entitled to feel good. (Bernthal et al., 2005, p. 142)

Cascading Financial Consequences of Risky Financial Behaviors

The transition to college life usually requires students to master a variety of new economic behaviors and skills, including budgeting, making debt payments on time, planning for large purchases, saving for retirement, and repaying student loans (Britt, Cumbie, & Bell, 2013). Mistakes in financial decisions will affect college students, even those employed in the postrecession economy, for a long time.

For example, Drew Brees, NFL Pro Bowl quarterback for the New Orleans Saints, recently admitted that he had learned the importance of financial literacy for college students during his rookie season in pro football when he tried to apply for a mortgage to buy his first home. A routine credit check revealed a low credit score created by a cell phone bill left unpaid during college. Brees eventually obtained a mortgage, but at a much higher interest rate than required by a peer with better credit. Realizing the commonality of financial ignorance of U.S. high school and college students, Brees has partnered with a credit card company to distribute financial education materials in the form of a video game (Brees, 2010; Goetz et al., 2011). Others are calling attention to the growing problem of student indebtedness and financial stress affecting college students (e.g., Avery & Turner, 2012; Shaffer, 2012; Travnichek, 2013).

Like the collegiate Drew Brees, some students fail to pay bills, but many others remain unaware of the way revolving credit agreements work, and therefore, they do not appreciate the impact of the terms on their credit ratings (Shaffer, 2012). After maxing out their credit cards, students may ask the company issuing the card to raise their credit limit for additional purchases (Bernthal et al., 2005). FAR students rationalize the continued accumulation of credit card debt through false information or unrealistic beliefs about the difficulty of repaying their debt in the future (“A Third of Students Will Face Long-Term Card Debt, Study Shows,” 2008). For example, some borrowers fail to understand (or consider) the effect of compounding interest charged on their credit cards and as a result believe that the required monthly payment directly reduces the balance owed on their credit card. Other borrowers justify their risky behavior by pointing to the anticipated postgraduation job that will provide enough earnings to maintain their affluent lifestyle while they pay off their debts (Bernthal et al., 2005).

Credit card companies aggressively target college students and often issue credit cards with spending limits inappropriate for incomes of the typical undergraduate (Hogan et al., 2013; Palmer et al., 2010; Silver-Greenberg, 2007). This tactic stimulates students to overspend (Robb & Pinto, 2010; Wang & Xiao, 2009), leading to missed, late, or minimum payments, which allow lenders to add charges and raise interest rates on the entire unpaid balance (Silver-Greenberg, 2007). A practice called universal default allows lenders to raise the interest rates of their borrowers who fail to make payments on any credit card the borrower holds. Therefore, a student who defaults on one credit card may find that the interest rate on each card has also been raised to the highest, legally permissible rate for the entire debt, including that incurred before the default (Silver-Greenberg, 2007).

Perhaps the worst possible consequence of holding both student loan and credit card debt and defaulting on either, regardless of reason (such as job or asset losses), shows in the long-term. Research indicates that borrowers typically default on student loans first, often using the money earmarked for student loan payments to keep up with their credit card payments so that they can continue to borrow money for nonschool expenses (Li, 2013). Economists call this strategy preserving liquidity (Li, 2013). The benefits of this approach, however, are very limited: Delinquent student loans usually force the borrower into a repayment plan lasting 10 to 15 years, possible garnishment of wages during the repayment period, and rescinded tax refunds and other federal benefits as well (Li, 2013). Furthermore, many delinquents are denied applications for new credit cards, experience cuts to the limits on cards they currently carry, and must pay increased interest rates on further use of credit (Li, 2013).

In the cruelest irony, the basis of the typical FAR student narrative—the assumption that the inevitable well-paying job, which prompted initial college enrollment, will ameliorate all past financial mistakes—qualifies as farce (Shaffer, 2012). College dropouts, including those who work to redeem their credit, do not qualify for most high-paying jobs without a degree, and graduates with poor credit histories generally are passed over by employers, who now regularly investigate applicants' credit histories (Shaffer, 2012). After being rejected for job openings, and often turned down for nice apartments by landlords who have also looked at their credit reports, many young adults move back in with their parents and become part of the boomerang generation (“Boomerang Generation,” 2008; Davidson, 2014).

The Emergence of the Boomerang Generation

Often motivated by the belief that a college degree provides the key credential to entering the labor force (Shaffer, 1997/2009, 2012), students matriculate expecting the college wage premium to permit them to easily pay off their student loans and credit card debt while maintaining or improving their lifestyle (Dolliver, 2010). The realities of the postrecession economy shatter the illusion and the sticker shock of the costs of housing, health care, insurance, and the other necessities of life contribute to the rude awakening from the dreamy visions created by premature affluence (Bonfiglio, 2009; Li, 2013; Vigeland, 2011).

When they discovered that they cannot maintain their standard of living and pay their own expenses, as many as 85% (Avery & Turner, 2012) have returned to live with their parents (Bonfiglio, 2009; Kadlec, 2013; Shaffer, 2012), earning the name Boomerang Generation (Davidson, 2014; “Boomerang Generation,” 2008; Kadlec, 2013). In fact, as news of the economic realities reached campus, students began making arrangements to return home as soon as they graduate. As a result, parents are realizing that their adult children might be home to stay for an indefinite period (Avery & Turner, 2012). In addition to the high school and college graduates struggling to find work, many working graduates have returned home to restore their pre-college standard of living as their parents resume paying their basic living expenses (Bonfiglio, 2009).