Live like the Affluent in College,Live like a Student after Graduation

GOOD MONEY! Over more than a 30-year career as a college professor and academic advisor, I have heard that phrase dozens of times from students expressing what they valued in the outcome of a college education. My students were not unusual: when polled during the Cooperative Institutional Research Program (CIRP) conducted by the Higher Education Research Institute (HERI) at UCLA in 2009, first-year students gave the belief that graduates of that school get good jobs as the most frequent reason for choosing their college, according to John H. Pryor, Sylvia Hurtado, Linda DeAngelo, Laura Palucki Blake, and Serge Tran. However, over time I realized that the pursuit of earning good money in the short run was beginning to trump the decisions students could make to prepare themselves for well-paying jobs and satisfying careers in the long run. Students were often making self-defeating choices because of their current commitments to a costly lifestyle they had adopted early in their college years. I remember particularly vividly a young woman who had spoken to me passionately of her desire to become an archaeologist, but who later told me that she could not consider joining a colleague's summer archaeological team because going out on a dig would prevent her from retaining a lucrative part-time job she held, in part, to operate and make the monthly payments on her new car. Later on, I encountered a new term for this conflict of economic and educational values: premature affluence.

Robert Bonfiglio recently wrote persuasively in this magazine about the difficulties young people have in attaining financial independence from their parents. Bonfiglio focused on the declining real earnings of workers and increasing levels of student debt and costs of independent living that call into question the taken-for-granted goals of self-reliance. He also noted that the consequence of these changes was often a return to living under parents’ roofs in an attempt to restore the standard of living to which they had become accustomed. Bonfiglio noted the sense of entitlement held by many college students to an upper-middle-class lifestyle upon graduation, but I want to point out that many students feel that same sense of entitlement concerning their lifestyle while pursuing a college degree. I agree that recent changes in basic economic conditions make it harder for college students to find their way in the new economy. However, in addition to these structural changes that drive up the costs of living in society, I believe that now, more than ever before, many students are also suffering from the effects of developing an unsustainable, affluent lifestyle both before and during the pursuit of a baccalaureate degree. Paradoxically, this affluent lifestyle is often the unintended consequence of choices that initially seem to be good mechanisms for teaching students financial responsibility and the value of a dollar: earning their own spending money through part-time work and building a credit history. Educators need to understand the issues associated with students’ experiences with working while attending college, and the spending habits they often develop during their college years, in order to help as many students as possible avoid becoming ensnared in a serious financial trap that can ruin their credit and limit their employability for years to come. Parents need to understand these issues as well—unless they are prepared to have their offspring living in their basements and eating out of their refrigerators for years to come!

Jerald Bachman of the Institute for Social Research at the University of Michigan introduced the term premature affluence in the 1980s to refer to the emerging pattern of discretionary spending displayed by high school students with part-time jobs. Bachman and his colleagues collected extensive data on student employment and spending habits and found that most of these students’ living expenses were provided by their parents, leaving the students free to spend their earnings on themselves. Before the twentieth century, children were expected to contribute to the family's economic well-being, and wages earned outside the home were turned over to the parents and controlled as family income. While some students in Bachman's studies contributed to their own expenses and saved money for college or other long-term expenses, most of the students spent most of their money on cars, clothes, entertainment, recreation, hobbies, gifts, and other personal expenses. Bachman called their use of spending money affluence because it represented what economists traditionally called discretionary spending— that is, money spent on items beyond their own living expenses such as rent, utilities, groceries, health care, and other necessities. He also referred to their spending habits as premature affluence because many, if not most, of these individuals would not be able to sustain their discretionary expenses after their schooling once they were forced to pay for their own room and board out of their own earnings. It is one thing to have “spending money” and to develop an affluent lifestyle and expensive tastes, but it is quite another to earn enough money to sustain that lifestyle once one is responsible for the costs of living as well.

Proponents of the trend on increasing levels of part-time employment among high school students touted the experience as a way for students to learn financial responsibility and the value of a dollar. However, Bachman argued that allowing students to spend all of their earnings on themselves without having to bear any of the costs of their own living expenses was more likely to result in something else: a sense of entitlement to an affluent lifestyle that most of them could never sustain. Bachman's concerns seemed well founded. Bachman and his colleagues also collected some data on graduates’ activities after high school. Not surprisingly, they found evidence that individuals’ satisfaction with their standard of living declined after graduation from high school, even among those graduates who were now fully employed and earning more money than they had during high school. Bachman's graduates seemed to be experiencing what social psychologists call relative deprivation—a sense of resentment based on a belief that one is being deprived of a deserved status or an expected standard of living.

Since Bachman's research was first published, more and more high school graduates are matriculating in college, and the locus of the problem has shifted from secondary to higher education. Students who became accustomed to a prematurely affluent lifestyle in high school typically see no reason to ratchet down their expectations about their lifestyle as an undergraduate. Business and marketing sectors profitably target young people as a major consumer group, and the increased personal freedom of college students makes them an even more desirable clientele for luxury products and services than high school students. While there may be some college students who anticipate living like a starving artist, more will begin college anticipating a very pleasant standard of living that will prove to be unsustainable, even if they persist and earn a college degree. There is a long list of expenditures that cause the costs of college to skyrocket well beyond the obvious concerns for the costs of tuition, fees, books, and college housing and meal plans. For students used to having lots of spending money, the following items will be seen (and justified) as necessities rather than luxuries:

Businesses that rely on college students as their clientele have long since learned that aggressive marketing pays off. One tried-and-true strategy for successful marketing is to advertise in college newspapers. For example, travel agencies market travel packages designed for college students by placing advertisements in student newspapers. Since advertisers who target college populations often create the depictions of college lifestyles, students used to having discretionary funds see no reason to question their ability to afford these things while pursuing a college degree. Even residence life on college campuses can feed into growing accustomed to the affluent lifestyle when facilities offer amenities like private bathrooms, housecleaning services, and utilities such as Internet and digital cable television connections.

As a recently retired professor and academic advisor, my first concern about students exposed to premature affluence was for its affect on students’ decisions about preparing for their futures. As in the case of my would-be archaeologist, I realized that many students’ choices were being distorted by the preoccupation with making good money. On the one hand, many students were missing opportunities to prepare for their futures because they would pass up opportunities to grow their skills and special knowledge (in economists’ terms, growing their human capital) because those opportunities did not pay well in the short run. While paid internships do exist in some fields, internships in the social sciences where I taught tend to be unpaid work. Many of my students, initially eager to look into prospects for having an internship, would quickly dismiss the idea of doing unpaid work under any circumstances, regardless of the potential benefits for finding satisfying careers after graduation. The same was true for volunteer work or service-learning opportunities. On the other hand, many students’ choice of possible majors and careers were often driven exclusively by the perception that graduates in certain fields made good money. I felt concern for students who had great interest in the subjects I taught but refused to consider exploring a major in my field because “there is no money in that.” My greater concerns were for students who chose majors that promised the opportunity for lucrative careers despite showing little intrinsic interest or aptitude for the courses they would be required to take in these curricula. In my experience, premature affluence greatly affects academic decision making by distorting students’ economic values.

Premature affluence also has another economic effect: exacerbating the problem of student debt. Spending all that you earn on yourself is one thing; borrowing money you don't have to spend on yourself is quite another. Many students dig a far deeper hole for themselves than they can immediately appreciate when they borrow money to support their affluent lifestyle. Many students start their college careers with no apparent concern for the amount of debt they are accumulating as they go. One reason is that indebtedness appears to them to be a natural part of the culture of going to college. As US public policy for supporting higher education moved away from offering government grants to college students and expecting more and more students to take out loans, students began to think of going into debt as simply the expected thing to do while they are in school. Another reason students avoid thinking about their growing indebtedness is that they believe that there is no productive reason to think about it now because it only makes them anxious. Even if they have the numerical skills to make some calculations concerning their future, they like to think about the large sums of money involved as “funny money.” Finally, they ignore confronting the issue of debt until they graduate, often because they have unrealistic expectations of how much money they are going to earn and how easy it will be to retire their debt. They (and their parents) have been told repeatedly that college graduates earn more than high school graduates, and they imagine that their additional earnings will allow them to retire their debt and live well at the same time. When I have asked my students about their thinking about paying back their debt, they never tell me that they have done any paper-and-pencil calculations about their situation. In place of facts and figures, they have substituted a simple slogan: “When I graduate, I will make good money!”

For decades, college students have had easy access to credit cards. Most students receive unsolicited applications from lending institutions, and first-year students often receive 25 or more applications in that first year. According to Jessica Silver-Greenberg, about three-fourths of all college students have credit cards, and college graduates average nearly $4,000 in credit card debt according to recent estimates. Lending institutions that issue credit cards to college students have enacted a variety of policies over the last two decades that often set students on a slippery slope that drags them deeper and deeper into debt. Even if student cardholders pay their balance in full, failure to make credit card payments in a timely fashion results in cardholders being assessed late fees. Even worse, students with too much credit card debt to pay down at the end of the month quickly discover that they have dug themselves in much deeper after a few more months, even if they stop making any further charges on their credit cards. Students often fail to recognize the consequences of making the minimum monthly payment by seriously underestimating the length of time it will take to pay down the balances on their credit cards this way. One obvious trigger of more serious problems is the failure to make one or more monthly payments, since most bank policies raise interest rates drastically on delinquent accounts. The tipping point for many students often comes when their activity on one credit card triggers changes on other credit cards they hold at the same time. A practice called “universal default” allows many lenders to raise interest rates on a credit card when they receive notification that the student has missed payments on any other credit cards the student holds as well. These default rates can be as high as 30 percent. Alternatively, if students are not taken down by universal default, they may find themselves in equally difficult circumstances if their credit cards come with interest rates tied to the students’ credit ratings. Since credit ratings suffer as debt mounts, they may receive notification that their interest rates have been raised because of a drop in their credit scores. Whether they are undone by universal default or by sinking credit reports, these students find themselves too deeply in debt to recover without help.

Like gamblers who continue to wager in an effort to win the money to pay off their gambling debts, students who depend on student loans to finance the costs of college often take out additional loan money to spend on lifestyle choices. For example, students often use college loans to pay the costs of having a car, justifying the practice by arguing that they must have a reliable mode of transportation to attend college at all. By making such choices, students effectively mask the costs of an affluent lifestyle by attributing them to educational expenditures. According to an article by Michael Hoffman, Karen McKenzie, and Susan Paris, a recent study of students at George Mason University found that about two-thirds of undergraduates who had student loans used at least some part of their student loan money to pay down credit card debt. In a similar fashion, many students have applied for a new credit card and used it to make payments on a previous balance. Sadly, the result of cascading financial problems like these is often the end of college careers. More students drop out of college because of debt or other financial pressures than because of academic failure. These casualties are often unnoticed: they “stop out” for a semester or two to “pay some bills” but do not return and never formally withdraw. For them, the situation is most dire: without a college degree, they often cannot qualify for that well-paying job that, in their own minds, was the economic motivation for going to college in the first place. Ironically, even students who graduate but amass a large amount of debt will also find it harder to land that well-paying job than they thought for one simple reason: employers often check applicants’ credit histories before they make job offers. Poor credit scores, like foolish postings of photographs on social networking sites, can cause prospective employers to look elsewhere when filling entry-level positions. Just when they think they are ready to find a job and begin paying off their bills, graduates may discover that they receive offers only for minimum-wage jobs, that landlords turn them down for nice apartments, and—when they do find an apartment—that they have to make larger deposits to the electric company to get their lights turned on!

As with every other type of preventable problem, an ounce of prevention is worth a pound of cure. Parents of high school students with plans to attend college should do something to help their children with part-time jobs to understand the difference between paying for the costs of living and having disposable income. One approach is for parents to designate certain costs for their children to pay (such as savings for college or for automobile insurance if they have access to a car) and to require children to discuss with them any purchases over a set dollar limit ahead of time. Even if parents plan to cover the costs of college tuition and fees plus living expenses, it would be advisable to help students anticipate the transition from being subsidized to the responsibilities of living on their own. Whether requiring college students to be responsible for some of the costs of their education (such as books or special fees) or saving money to travel for interviews with prospective employers or graduate programs, parents would be well advised to find some mechanism to help students anticipate the transition to paying their own living expenses after graduation.

Every member of the campus community can play a role in helping college students make better lifestyle and financial decisions. According to an article in Student Affairs Today, student affairs professionals can help students make better decisions by educating them in the best practices of money management. For example, they can guide parents toward working with their students to make a budget for each semester of college. Financial aid officers can work with student services professionals to help parents and students learn to apply for federal student loans rather than to pay the costs of college through high-interest bank loans or credit cards. Academic advisors can work with student affairs professionals to identify reputable resources for working with student debt, particularly when students report being troubled by the consequences of poor choices they have already made. Finally, faculty members can often find ways of helping their students during course work when students’ financial matters are a legitimate topic within that course. For example, I created an algorithm for calculating the true costs of a student's college education that I used as a classroom demonstration for a class in the Sociology of the Family. That algorithm (which is published in a 1998 article in the NACADA Journal) serves as an excellent opportunity to introduce my students to maximizing the opportunity they have to develop human capital and to explain the costs of premature affluence. Faculty in Accounting or Finance Departments can offer financial literacy programs to their campuses as well. No matter what formal role we play as members of a college community, we all share a common source of motivation to try to help our students with their finances: financial woes often lead to student-performance problems and to student-retention problems that affect us all.

Many in my parents’ generation worried about their sons or daughters turning into eggheads or bohe-mians when they went off to college. The anti-intellectual stereotypes that animated American fear of the college campus during the Cold War era associated ascetic privation with higher education. If students went home during breaks from classes and looked like starving artists, many parents’ worst fears were confirmed. Somehow, preppies were more socially acceptable than beatniks. Times have certainly changed! At the end of the twentieth century, PBS ran a documentary entitled Affluenza that argued that America had been swept by a figurative epidemic, a contagion from which victims displayed symptoms of restless pursuit of wealth, spiraling debt, and conspicuous consumption. The recent book by John de Graaf, David Wann, and Thomas H. Naylor based on the PBS series suggests that affluenza is a family disease, and that the Millennial generation of college students has caught the bug from their parents. The message of delayed gratification is always a tough sell, but we need to tell our students why it is better to “live like a student” before they graduate, rather than afterward!